Rule 11 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 11 of the Income-tax Rules, 2026 values assets held directly or indirectly by a foreign company for section 9(10) — listed shares at observable price, control blocks by (A+B)/C, everything else by a merchant banker or accountant.
The scope
Sub-rule (1): the fair market value of an asset, tangible or intangible, as on the specified date, held directly or indirectly by a foreign company or entity, for the purposes of section 9(10), is computed under rule 11 with reference to the specified date. The 1962 parallel is rule 11UB, and the definitions come from rule 10.
Listed shares of an Indian company
Sub-rule (2): the fair market value is the observable price of the share on the recognised stock exchange, subject to two qualifications:
| Situation | Value |
|---|---|
| The share is held as part of a shareholding which confers, directly or indirectly, a right of management or control in the company | (A + B) / C, where A = the market capitalisation of the company on the basis of the observable price of its quoted shares; B = the book value of liabilities of the company; and C = the total number of outstanding shares |
| The share is listed on more than one recognised stock exchange on the specified date | The observable price is computed with reference to the exchange which records the highest volume of trading in the share during the tax year |
The (A+B)/C formula in rule 11 adds the book value of liabilities to market capitalisation and divides by the share count. That is an enterprise value per share, and it is always at least the observable price. So an identical share is worth more under rule 11 when it forms part of a controlling block than when it does not — which is why the right of management or control definition in rule 10, catching indirect and collective control, matters so much here.
Unlisted shares, firms and other assets
| Asset | Method |
|---|---|
| Share of an Indian company not listed on the specified date | Fair market value determined by a merchant banker or an accountant as per any internationally accepted valuation methodology for valuation of shares on arm's length basis, increased by the liability, if any, considered in that determination |
| Any other asset not within sub-rules (2), (3) or (4) | The price it would fetch if sold in the open market, as determined by a merchant banker or an accountant, increased by the liability, if any, considered |
Sub-rule (4) sets out a five-step method for an interest in a partnership firm or an association of persons:
- the value of the firm or AOP is determined by a merchant banker or an accountant under any internationally accepted methodology, increased by any liability considered;
- the part of that value equal to the amount of its capital is allocated among the partners or members in the same proportion in which the capital has been contributed;
- the residue is allocated as per the agreement for distribution of assets on dissolution;
- in the absence of such agreement, the residual value is allocated in proportion to the shares in profits; and
- the sum of the amounts allocated to a partner or member is the fair market value of that interest.
The two-tier allocation matters: capital comes back in capital-contribution ratio, and only the surplus above capital follows the dissolution agreement or, failing that, the profit ratio.
Valuing all the assets of the foreign company
Sub-rule (6) gives a Table for the fair market value of all the assets of the foreign company or entity on the specified date:
| Sl. | Condition | Fair market value of all assets |
|---|---|---|
| 1 | The transfer of the share or interest is between persons who are not connected persons, for the purpose of that transfer | A + B, where A = market capitalisation computed on the basis of the full value of consideration for the transfer, and B = book value of the liabilities as on the specified date, certified by a merchant banker or an accountant |
| 2 | The share is listed on a stock exchange on the specified date | A + B, where A = market capitalisation on the basis of the observable price on the exchange where it is listed, and B = book value of the liabilities |
| 3 | The share is listed on more than one stock exchange | A + B, with A computed on the observable price on the exchange recording the highest volume of trading during the period considered for determining the price |
| 4 | The share is not listed on a stock exchange on the specified date | A + B — see the extraction note below |
In the published text of the Income-tax Rules, 2026 that this article works from, the definitions of A and B for Sl. No. 4 of the rule 11 sub-rule (6) Table do not survive the PDF's text extraction — the row ends at "Fair market value of all the assets = A + B Where, —" and the next readable text is sub-rule (7). The components for an unlisted foreign company are therefore not reproduced here, and should be read from the official gazette text. Nothing has been supplied from memory.
The three closing rules
- Interim balance sheet — sub-rule (7): where fair market value has been determined on an interim balance sheet under rule 10(b)(ii), it shall be appropriately modified after finalisation of the relevant financial statement, and rules 11, 12 and 235 shall apply accordingly.
- Worldwide assets counted — sub-rule (8): for the fair market value of an asset located in India being a share of an Indian company or an interest in a firm or AOP, all the assets and business operations of that company, firm or AOP shall be taken into account whether located in India or outside.
- Exchange rate — sub-rule (9): the rate for calculating in foreign currency the value of assets located in India and expressed in rupees is the telegraphic transfer buying rate of such currency as on the specified date.
Sub-rule (8) is easy to misapply. It does not ask what proportion of the Indian company's assets are in India — it directs that the Indian company be valued as a whole, foreign operations included. The India-versus-total split happens later, in the rule 12 formula.
Worked example
| Asset | Value under rule 11 |
|---|---|
| Listed Indian share held as a portfolio investment | Observable price |
| Same share as part of a block conferring board control | (A + B) / C — enterprise value per share |
| Share listed on two exchanges | Observable price on the exchange with the highest trading volume in the tax year |
| Unlisted Indian subsidiary | Merchant banker or accountant valuation, grossed up for liabilities considered |
| 30% interest in an Indian LLP with no dissolution clause | Capital back in capital ratio; residue in profit-sharing ratio |
| Indian company with a Dubai branch | Whole company valued, branch included |
| Valuation done on an interim balance sheet | Revised after the accounts are finalised |
Compliance checklist
- Fix the specified date under section 9(10)(d) before anything else.
- Test whether the shareholding confers a right of management or control as defined in rule 10.
- Compute the observable price on both windows, and on the highest-volume exchange where multiply listed.
- Use a merchant banker or a rule 10-qualified accountant for unlisted shares, firm interests and other assets.
- Gross up for the liability considered in any such determination.
- Allocate a firm or AOP interest in two tiers — capital, then residue.
- Value the Indian company including its foreign operations.
- Convert using the telegraphic transfer buying rate on the specified date.
- Revisit the valuation once interim accounts are finalised.
Common mistakes
- Using the observable price for a controlling block.
- Picking the primary exchange rather than the highest-volume one.
- Excluding foreign operations of the Indian company.
- Allocating a firm interest wholly in the profit ratio.
- Leaving an interim-balance-sheet valuation unrevised.