Rule 3 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 3 says how the "fair market value" of an undisclosed foreign asset is worked out, because section 3(2) of the Act leaves the manner to be prescribed. This article covers rules 1 and 2, and the part of rule 3 that deals with bullion, jewellery and precious stones, works of art, immovable property, bank accounts, other assets, assets transferred before the valuation date, and the reduction for a new asset bought from the proceeds. Shares, securities and interests in firms, and conversion into rupees, are in the companion article.
As per the Rules as notified on 2 July 2015 (G.S.R. 529(E)), the fair market value of bullion, jewellery, precious stone, a work of art, immovable property and any other asset is the higher of its cost of acquisition and the price it would fetch in the open market on the valuation date. A bank account is valued at the sum of all deposits made since it was opened, with a modified rule if it was declared under Chapter VI. An asset transferred before the valuation date, and a new asset bought from the proceeds of an old one, have their own rules in sub-rules (2) and (3).
Rules 1 and 2: title, commencement and definitions
Rule 1 gives the title, "the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015", and says the Rules come into force on the date of their publication in the Official Gazette. The notification is dated the 2nd of July, 2015; the copy in the sources is headed as a draft for publication, and later amendment rules should be checked.
Rule 2 defines "Act", "Chapter", "Form", "Income-tax Act" (the Income-tax Act, 1961) and "section", and says words defined in the Act, the Income-tax Act or the Rules made under them have the meanings given there. The Rules were made under sub-sections (1) and (2) of section 85 of the Act, which is covered in our article on sections 84 and 85.
What rule 3 implements
Section 3(2) of the Act says that, for the purposes of the charge, "value of an undisclosed asset" means the fair market value of an asset (including financial interest in any entity) determined in such manner as may be prescribed. Rule 3(1) opens: "For the purposes of sub-section (2) of section 3 of the Act, the fair market value of the assets shall be determined in the following manner". The charge itself is explained in our article on section 3. The "valuation date" is dealt with in the companion article on rule 3 for shares, securities and interest in a firm.
If you hold property, gold or accounts abroad and need to understand how they are valued, our NRI tax filing team can help you work through the figures.
Rule 3(1)(a): bullion, jewellery or precious stone
The value is the higher of (I) its cost of acquisition and (II) the price it would ordinarily fetch if sold in the open market on the valuation date, for which the assessee may obtain a report from a valuer recognised by the Government of a country or specified territory outside India, or any of its agencies, for the purpose of valuation of bullion, jewellery or precious stone under any regulation or law.
Rule 3(1)(b): works of art
For archaeological collections, drawings, paintings, sculptures or any work of art (called "artistic work"), the same two-limb test applies: the higher of cost of acquisition and the open-market price on the valuation date, for which the assessee may obtain a report from a recognised valuer for the valuation of artistic work.
Rule 3(1)(d): immovable property
The fair market value of an immovable property is the higher of its cost of acquisition and the price it would ordinarily fetch if sold in the open market on the valuation date, for which the assessee may obtain a valuation report from a valuer recognised by the Government of the country or specified territory outside India in which the property is located, or any of its agencies.
Rule 3(1)(e): a bank account
The value of an account with a bank is:
- (I) the sum of all the deposits made in the account with the bank since the date of opening of the account; or
- (II) where a declaration of the account has been made under Chapter VI and the value computed under (I) has been charged to tax and penalty under that Chapter, the sum of all the deposits made in the account since the date of such declaration.
The proviso: where any deposit is made from the proceeds of any withdrawal from the account, that deposit is not taken into consideration while computing the value of the account. So a bank account is valued by deposits, not by the balance on the valuation date. The Chapter VI reference is to the one-time window, which is closed on the face of the sources; see our article on sections 60 to 63.
Rule 3(1)(h): any other asset
The valuation of any other asset is the higher of (I) its cost of acquisition or the amount invested and (II) the price the asset would fetch if sold in the open market on the valuation date in an arm's-length transaction.
Clauses (c), (f) and (g), on shares, securities and interests in a firm, are not covered here.
Rule 3(2): an asset transferred before the valuation date
Notwithstanding sub-rule (1), where an asset (other than a bank account) was transferred before the valuation date, its fair market value is the higher of its cost of acquisition and the sale price. The proviso: where the asset was transferred without consideration or for inadequate consideration before the valuation date, the fair market value is the higher of cost of acquisition and the fair market value on the date of transfer.
Rule 3(3): a new asset bought from the proceeds
Where a new asset has been acquired or made out of consideration received on account of transfer of an old asset or withdrawal from a bank account, the fair market value of the old asset or the bank account, determined under sub-rules (1) and (2), is reduced by the amount of the consideration invested in the new asset.
The rule's own illustration
The rule prints this illustration (the amounts are as printed). A house property (H1) outside India was bought in 1997 for twenty lakh rupees, sold in 2001 for twenty five lakh rupees which were deposited in a foreign bank account (BA). In 2002 another house property (H2) was bought for thirty lakh rupees by withdrawal from BA. H2 has not been transferred before the valuation date and its value on that date is fifty lakh rupees. Assuming the value of BA under rule 3(1)(e) is seventy lakh rupees:
| Asset | Working as printed | Fair market value |
|---|---|---|
| H1 | Higher of Rs. 20 lakh and 25 lakh, less Rs. 25 lakh invested in BA | Nil |
| BA | Rs. 70 lakh, less Rs. 30 lakh invested in H2 | Rs. 40 lakh |
| H2 | Higher of Rs. 30 lakh and 50 lakh | Rs. 50 lakh |
Reading the illustration, H1 is valued at the sale price of twenty five lakh rupees under sub-rule (2), and that is cut to nil because the whole sale price went into BA. BA is cut by the thirty lakh rupees that went into H2. H2, which is held, is valued at the higher figure.
The sub-rules at a glance
| Provision of rule 3 | Asset or case | Measure (as notified in 2015) |
|---|---|---|
| (1)(a) | Bullion, jewellery, precious stone | Higher of cost and open-market price on the valuation date |
| (1)(b) | Works of art | Higher of cost and open-market price on the valuation date |
| (1)(d) | Immovable property | Higher of cost and open-market price, valuer of the country where located |
| (1)(e) | Bank account | Sum of deposits since opening (or since declaration if declared under Chapter VI) |
| (1)(h) | Any other asset | Higher of cost or amount invested and arm's-length price |
| (2) | Asset (not a bank account) transferred before the valuation date | Higher of cost and sale price; transfer without or for inadequate consideration: higher of cost and value on the date of transfer |
| (3) | New asset bought from proceeds | Old asset or account value reduced by the consideration invested |
A worked example
Vandana Kulkarni, a resident, holds a flat abroad, bought for fifty lakh rupees, which a recognised valuer of that country would put at eighty lakh rupees on the valuation date. Under rule 3(1)(d), the fair market value is the higher of the two, eighty lakh rupees. She also holds a foreign bank account into which, since it was opened, deposits totalling twelve lakh rupees were made, of which two lakh rupees were redeposits of her own withdrawals. Under rule 3(1)(e) and its proviso, the value is ten lakh rupees. The figures are invented and describe no real case.
Points the text leaves open
The rule says the assessee "may obtain a report" from a recognised valuer; it does not say that a report is compulsory or what follows if none is obtained. It does not say which valuation date applies in this part of the rule, because that is in Explanation 2 (see the companion article). The illustration's "Rule 3(1)(e)" is quoted as printed. This article does not read in any further procedure.
References and what to check
The rule is read as notified on 2 July 2015, and later amendment rules should be checked. References to the Income-tax Act are to the Income-tax Act, 1961 as printed in 2015; the corresponding provision of the current income-tax law should be checked. Our guide on foreign asset reporting in the return covers the income-tax side.
Need help valuing foreign assets?
If you hold property, bullion, art or accounts abroad and need to understand how the Rules value them, our NRI tax filing team can walk through the rule with you and your documents.
Key takeaways
- Rule 3 is made for section 3(2) and prescribes fair market value for the charge.
- Bullion, jewellery, precious stones, works of art and immovable property: the higher of cost and open-market price on the valuation date.
- A bank account is valued at the sum of deposits since opening (or since a Chapter VI declaration), leaving out redeposits of withdrawals.
- A transferred asset takes the higher of cost and sale price; a new asset bought from proceeds reduces the old value.
- The Rules are read as notified on 2 July 2015; check later amendment rules.
Read next
- Rule 3: fair market value of shares, securities and interest in a firm
- Section 3: charge of tax on undisclosed foreign income and asset
- Rules 4 to 8 and Forms 1 to 5
- Section 4 of FEMA 1999: holding foreign exchange, foreign security and property outside India
Disclaimer: Based on the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 as enacted and published in the Gazette of India on 27 May 2015, and on the Rules of 2015 as notified on 2 July 2015, as consulted on 2 October 2026. Later Finance Act amendments, amendment rules and the current income-tax law should be checked. This article is general information, not legal advice; check the official text before acting.