Rule 189 of Income 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 189 of the Income-tax Rules, 2026 prescribes the valuation method for computing accreted income under section 352(2) — the tax on a registered non-profit organisation's net asset base when it exits the regime. Assets are valued class by class, liabilities are taken at book value with five exclusions, and the balance sheet must be audited as drawn up on the specified date. It replaces rule 17CB.
What rule 189 is for
Accreted income is, in substance, an exit charge: the excess of the fair market value of the total assets of a specified person over its total liability, on a specified date. Rule 189 supplies both halves of that computation — how assets are valued, and what counts as a liability.
Because the charge is on a net figure, both an overstated asset value and an understated liability increase the tax. The exclusions in sub-rule (3) therefore matter as much as the valuation methods in sub-rule (2).
Total assets — sub-rule (1)
The aggregate fair market value of the total assets is the aggregate of the fair market value of all the assets in the balance sheet, reduced by:
- (a) tax paid; and
- (b) any amount shown as an asset, including the unamortised amount of deferred expenditure, which does not represent the value of any asset.
Valuation methods — sub-rule (2)
(I) Shares and securities
| Type | Method |
|---|---|
| Quoted shares and securities | The average of the lowest and highest price quoted on a recognised stock exchange as on the specified date; or, where there was no trading on the specified date, the average of the lowest and highest price on the immediately preceding date on which they were traded |
| Unquoted equity shares | The formula (A + B − L) × (PV / PE), set out below |
| Shares and securities other than equity shares | The price it would fetch if sold in the open market on the specified date, on the basis of a valuation report from a merchant banker or an accountant |
The unquoted equity share formula
| Component | Definition |
|---|---|
| A | Book value of all the assets in the balance sheet — other than bullion, jewellery, precious stone, artistic work, shares, securities and immovable property — reduced by (i) tax paid, and (ii) any amount shown as an asset including the unamortised amount of deferred expenditure which does not represent the value of any asset |
| B | Fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property as determined in the manner provided in this rule |
| L | Book value of liabilities shown in the balance sheet, excluding the items listed below |
| PV | The paid-up value of such equity share |
| PE | Total amount of paid-up equity share capital as shown in the balance sheet |
The exclusions from L are: contingent liabilities other than arrears of dividends payable in respect of the paid-up capital on equity shares; the amount set apart for payment of dividends on preference and equity shares; reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; any amount representing provision for taxation, other than tax paid, to the extent of the excess over the tax payable with reference to book profits; and provisions made for meeting liabilities other than ascertained liabilities.
The exclusion list in A for rule 189 is wider than the equivalent in rules 53 and 57: it names bullion, jewellery, precious stone, artistic work, shares, securities and immovable property. Bullion and precious stones are carved out of book value and brought back in at fair market value through B. A non-profit holding donated gold or gemstones will find that this rule, not the general fair-market-value rules, governs how they enter the computation.
(II) Immovable property
The higher of:
- (a) the price the property shall ordinarily fetch if sold in the open market on the specified date, on the basis of a valuation report from a registered valuer; and
- (b) the stamp duty value as on the specified date.
This is a higher-of test, unlike rule 57 Sl. No. 6, which takes the stamp duty value alone. For a property whose market value exceeds the circle rate, rule 189 produces the larger figure — and it requires a registered valuer report to establish it.
(III) Business undertaking
A business undertaking held by a specified person is valued at its net assets: Fair market value = (A + B − L), determined in the manner provided in clause (I)(b). The PV/PE multiplier of the share formula does not apply — an undertaking is not divided into shares.
(IV) Any other asset
The price the asset shall ordinarily fetch if sold in the open market on the specified date, on the basis of a valuation report from:
- (a) a registered valuer; or
- (b) where no valuer is registered for valuation of that asset, a valuer who is a member of one of the following bodies:
| Professional valuer bodies named in rule 189(2)(IV)(b) |
|---|
| Institution of Valuers |
| Institution of Surveyors (Valuation Branch) |
| Institution of Government Approved Valuers |
| Practicing Valuers Association of India |
| The Indian Institution of Valuers |
| Centre for Valuation Studies, Research and Training |
| Royal Institute of Chartered Surveyors: India Chapter |
| American Society of Appraisers, United States of America |
| Appraisal Institute, United States of America |
| A valuer appointed by any public sector bank or public sector undertaking for valuation purposes |
The fallback list opens only where no valuer is registered for that class of asset. It is not a free choice between a registered valuer and a member of one of these bodies.
Total liability — sub-rule (3)
The total liability is the book value of liabilities in the balance sheet on the specified date, not including:
- (a) capital fund or accumulated funds or corpus, by whatever name called;
- (b) reserves or surpluses or excess of income over expenditure, by whatever name called;
- (c) any amount representing a contingent liability;
- (d) any amount representing provisions made for meeting liabilities other than ascertained liabilities; and
- (e) any amount representing provision for taxation, other than tax paid, to the extent of the excess over the income-tax payable with reference to the income.
A registered non-profit organisation's balance sheet is largely corpus and accumulated funds on the liabilities side. Sub-rule (3)(a) takes all of it out. What remains as "total liability" is only genuine third-party obligation — so accreted income is, in effect, the fair market value of the asset base less real external debt. Anyone reading the accounts and expecting corpus to reduce the charge has misread the rule.
Definitions — sub-rule (4)
| Term | Meaning |
|---|---|
| Accountant | As in section 515(3)(b) |
| Balance sheet | The balance sheet of the specified person, including notes annexed and forming part of the accounts, drawn up on the specified date and audited by an accountant |
| Merchant banker | Category I merchant banker registered with SEBI |
| Quoted share or security | Quoted on a recognised stock exchange with regularity, on quotations based on current transactions in the ordinary course of business |
| Recognised stock exchange | As in section 2(f) of the Securities Contracts (Regulation) Act, 1956 |
| Registered valuer | A person registered as a valuer under section 514 |
| Securities | As in section 2(h) of the Securities Contracts (Regulation) Act, 1956 |
| Specified date | The date specified in column C of the Table in section 352(4) |
| Specified person | As in section 355(l) |
| Stamp duty value | The value adopted, assessed or assessable by a Central or State Government authority for stamp duty on an immovable property |
| Tax paid | Income-tax paid as deduction or collection at source or as advance tax payment, reduced by income-tax claimed as refund |
| Unquoted share and security | A share or security which is not a quoted share or security |
Two of these carry real work. "Balance sheet" requires an audit as at the specified date — for a body whose accounts are prepared annually, that means a special-purpose audited balance sheet. And "registered valuer" here means registration under section 514, which is a different reference from rule 56's section 513; check the register that actually applies.
Compliance checklist
- Fix the specified date from column C of the Table in section 352(4).
- Obtain a balance sheet drawn up on the specified date and audited by an accountant.
- Reduce total assets by tax paid and by non-assets, including unamortised deferred expenditure.
- Value quoted securities on the average of the day's low and high, falling back to the last traded date.
- Value immovable property on the higher of a registered valuer's open market figure and the stamp duty value — a valuer report is needed either way.
- Carve bullion, jewellery, precious stone and artistic work out of A and bring them back through B.
- Use the fallback valuer bodies only where no valuer is registered for that asset class.
- Exclude corpus, accumulated funds, reserves and surpluses from total liability.
- Confirm the valuer's registration is under section 514.
- Cite rule 189 and section 352, not rule 17CB and section 115TD.
Common mistakes
- Treating corpus as a liability and reporting a nil or negative accreted income.
- Using the closing price of a quoted security instead of the average of the low and high.
- Taking the stamp duty value alone for immovable property.
- Using the last annual balance sheet instead of one drawn up and audited on the specified date.
- Applying the PV/PE multiplier to a business undertaking.
- Choosing a fallback valuer body where a registered valuer exists for the asset.