Rule 53 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 53 of the Income-tax Rules, 2026 fixes the fair market value of capital assets transferred by slump sale for the purposes of section 77(3)(b) as the higher of FMV1 — the net assets of the undertaking — and FMV2 — the value of the consideration received. Both are computed on the date of the slump sale. It replaces rule 11UAE.
The higher-of test
Sub-rule (1) is the whole architecture in one sentence: the fair market value shall be FMV1 determined under sub-rule (2) or FMV2 determined under sub-rule (3), whichever is higher.
That means a slump sale valuation is never a single computation. Both sides must be worked out — the assets given up and the consideration received — and the larger figure governs. Computing only one of them is not a shortcut; it is an incomplete valuation.
FMV1 — net assets of the undertaking, sub-rule (2)
FMV1 = A + B + C + D − L
| Component | Definition |
|---|---|
| A | Book value of all the assets — other than jewellery, artistic work, shares, securities and immovable property — as appearing in the books of account of the undertaking or division transferred, reduced by, so far as they relate to that undertaking or division: (i) income-tax paid less income-tax refund claimed; 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 | The price jewellery and artistic work would fetch if sold in the open market, on the basis of a registered valuer's report |
| C | Fair market value of shares and securities as determined in the manner provided in rule 57 |
| D | The value adopted, assessed or assessable by any Government authority for stamp duty on the immovable property |
| L | Book value of liabilities as appearing in the books of the undertaking or division, excluding the six items below, so far as they relate to that undertaking or division |
The six exclusions from L
- the paid-up capital in respect of equity shares;
- the amount set apart for payment of dividends on preference and equity shares where those dividends have not been declared before the date of transfer at a general body meeting;
- 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 income-tax paid less refund claimed, to the extent of the excess over the tax payable with reference to book profits;
- any amount representing provisions made for meeting liabilities other than ascertained liabilities;
- any amount representing contingent liabilities other than arrears of dividends payable on cumulative preference shares.
A, L and the reductions are each qualified by the words "of the undertaking or the division transferred by way of slump sale" and "which relate to such undertaking or the division". FMV1 is not derived from the transferor company's balance sheet as a whole. Where an undertaking has never been carved out in the books, the carve-out has to be done — and documented — before rule 53 can be applied at all.
FMV2 — the consideration, sub-rule (3)
FMV2 = E + F + G + H
| Component | Definition |
|---|---|
| E | Value of the monetary consideration received or accruing as a result of the transfer |
| F | Fair market value of non-monetary consideration represented by property referred to in rule 57 , determined in the manner provided in that rule |
| G | The price that non-monetary consideration represented by property other than immovable property, and not covered by rule 57 Sl. Nos. 1 to 5, would fetch if sold in the open market, on the basis of a registered valuer's report |
| H | The stamp duty value where the non-monetary consideration is represented by immovable property |
FMV2 therefore captures the full consideration package — cash, shares and securities, other property, and land or buildings — each measured by the method appropriate to it. A slump sale settled partly in the acquirer's shares is valued under F by reference to rule 57, not at the parties' agreed figure.
The valuation date — sub-rule (4)
The fair market value under both sub-rules (2) and (3) is determined on the date of the slump sale, and for this purpose the valuation date referred to in rule 57 shall also mean the date of slump sale.
That second limb is what makes rule 57 workable inside rule 53. Rule 56's valuation date Table is keyed to sections 92, 79 and 26(2)(j) and would otherwise give no date for a slump sale; sub-rule (4) supplies one.
Definitions — sub-rule (5)
- "artistic work" means archaeological collections, drawings, paintings, sculptures or any work of art.
- "registered valuer" and "securities" carry the meanings assigned to them in rule 56.
Worked example
A company transfers a manufacturing division by slump sale on 12 August 2026 for Rs 90 crore in cash plus land whose stamp duty value is Rs 14 crore.
- FMV2 = E (Rs 90 crore) + H (Rs 14 crore) = Rs 104 crore.
- FMV1 is built from the division's own books as at 12 August 2026: A (book value of assets other than the five excluded classes, net of the two reductions), plus B, C and D for the excluded classes, less L computed after the six exclusions. Suppose this comes to Rs 97 crore.
- The fair market value for section 77(3)(b) is the higher — Rs 104 crore.
- Because the land is part of the consideration received, it enters H in FMV2. Land transferred out as part of the undertaking would instead enter D in FMV1. The two are easily confused and produce very different answers.
Compliance checklist
- Compute both FMV1 and FMV2 — the rule takes the higher.
- Carve the undertaking's assets and liabilities out of the books and document the basis.
- Take A net of income-tax paid less refund claimed, and of non-assets including unamortised deferred expenditure.
- Value jewellery and artistic work through a registered valuer, and shares and securities through rule 57.
- Apply all six exclusions to L, including the negative reserves rule.
- Put consideration property in the right FMV2 component — F for rule 57 property, G for other movable property, H for immovable property.
- Value everything as at the date of slump sale.
- Cite rule 53 and section 77, not rule 11UAE and section 50B.
Common mistakes
- Computing only FMV2 because the consideration is known and the books are messy.
- Using the whole company's balance sheet instead of the undertaking's.
- Valuing consideration shares at the agreed price rather than under rule 57.
- Putting immovable property received as consideration into D instead of H.
- Deducting negative reserves in L.
- Valuing as at the last balance sheet date rather than the date of slump sale.