Rules 56 and 57 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 57 of the Income-tax Rules, 2026 prescribes, in a seven-row Table, how fair market value is determined for jewellery, artistic work, quoted shares, unquoted equity shares, other unquoted securities, immovable property and any other property. Rule 56 supplies the definitions — balance sheet, merchant banker, quoted share, registered dealer, registered valuer, securities — and the three valuation dates. Together they replace rules 11U, 11UA and 11UAA.
The structure — a definitions rule and a method rule
| Rule | 1962 parallel | What it does |
|---|---|---|
| 56 | Rule 11U | Meanings of expressions used in determining fair market value, and the valuation date Table |
| 57 | Rules 11UA and 11UAA | The method of determination, section by section and property by property |
Rule 57 is framed as a Table with four columns: the section (column B), the nature of property (column C) and the manner of determination (column D). It is therefore not a single valuation standard — the method depends on which section sent you there.
Rule 57 — the seven rows
Sl. No. 1 — Jewellery (sections 26(2)(j) and 92)
- (a) the price the jewellery would fetch if sold in the open market on the valuation date; or
- (b) if received by way of purchase from a registered dealer on the valuation date — the invoice value; or
- (c) if received by any other mode and its value exceeds Rs 50,000 — the assessee may obtain a report from a registered valuer on the open market price on the valuation date.
Sl. No. 2 — Artistic work (sections 26(2)(j) and 92)
"Artistic work" here means archaeological collections, drawings, paintings, sculptures or any work of art. The three limbs mirror jewellery exactly — open market price, invoice value on a registered-dealer purchase, or a registered valuer report where received by other means and the value exceeds Rs 50,000.
Limb (c) is permissive — "the assessee may obtain a report from a registered valuer". It is not a mandatory valuation trigger. What the Rs 50,000 threshold does is mark the point at which a registered valuer report becomes an available and, in practice, an advisable basis. Below it, the assessee is left with the open-market test in limb (a) and must support it some other way.
Sl. No. 3 — Quoted shares and securities (sections 26(2)(j) and 92)
- (a) where received by way of a transaction carried out through any recognised stock exchange — the transaction value as recorded in that stock exchange;
- (b) where received by way of a transaction other than through a recognised stock exchange — the fair market value shall be determined as set out in the rule.
The text of limb (b) does not survive the published text layer of the book. Read Sl. No. 3, column D of the rule 57 Table directly before valuing an off-exchange transfer of quoted shares. This article does not reconstruct it.
Sl. No. 4 — Unquoted equity shares (sections 26(2)(j), 72 and 92)
The value is given by a formula built on the balance sheet. The extracted text carries the components as follows:
| Component | Definition as read |
|---|---|
| A | Book value of assets, reduced by (a) any income-tax paid less income-tax refund claimed, and (b) 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 this rule |
| D | The value adopted, assessed or assessable by any Government authority for stamp duty on the immovable property |
| L | Book value of liabilities shown in the balance sheet, excluding the six items below |
| PV | The paid-up value of such equity shares |
| PE | Total amount of paid-up equity share capital as shown in the balance sheet |
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.
"Reserves and surplus, by whatever name called, even if the resulting figure is negative" is excluded. A company carrying accumulated losses cannot add that negative reserve back into liabilities to depress the share value. This is the single most misapplied line in the whole formula.
The published text layer does not carry the opening of the Sl. No. 4 formula in full — it reads "(A + B + C + D –" and then breaks before resuming at the component definitions. Read Sl. No. 4, column D of the rule 57 Table in the book for the complete formula, including how PV and PE apply to it. The component definitions above are quoted as they appear.
Sl. No. 5 — Unquoted shares and securities other than equity shares (sections 26(2)(j), 72 and 92)
For unquoted shares and securities other than equity shares in a company, and which are not listed on any recognised stock exchange: the price it would fetch if sold in the open market on the valuation date, and the assessee may obtain a report from a merchant banker or an accountant.
Note the difference from Sl. No. 1 and 2: here the permitted reporter is a merchant banker or an accountant, not a registered valuer.
Sl. No. 6 — Immovable property being land or building or both (section 26(2)(j))
The value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of that immovable property on the valuation date.
Sl. No. 7 — Any other property (section 26(2)(j))
Any property not covered by Sl. Nos. 1 to 6: the price that the property would ordinarily fetch on sale in the open market on the valuation date.
Rule 56 — the definitions that make rule 57 work
| Expression | Meaning under rule 56 |
|---|---|
| Balance sheet | For an Indian company — the balance sheet including notes annexed and forming part of the accounts, drawn up on the valuation date and audited by the auditor appointed under company law. For a company other than an Indian company — the same, audited by the auditor, if any, appointed under the laws of the country of registration or incorporation |
| Merchant banker | Category I merchant banker registered with SEBI established under section 3 of the SEBI Act, 1992 |
| Quoted shares or securities | Quoted on a recognised stock exchange with regularity from time to time, where the quotations are based on current transactions made in the ordinary course of business |
| Recognised stock exchange | As in section 2(f) of the Securities Contracts (Regulation) Act, 1956 |
| Registered dealer | A dealer registered under the Central Sales Tax Act, 1956 or the general sales tax law in force in any State, including value added tax laws |
| Registered valuer | As assigned in section 513 |
| Securities | As in section 2(h) of the Securities Contracts (Regulation) Act, 1956 |
| Unquoted shares and securities | Shares and securities which are not quoted shares or securities |
Rule 56(a) does not accept the last available annual balance sheet. It requires one drawn up on the valuation date and audited. Where a transaction falls mid-year, an audited balance sheet as at that date has to exist for the Sl. No. 4 formula to be applied on the rule's own terms. This is a planning point, not an afterthought — it must be arranged before the transaction, not after.
The three valuation dates — rule 56(i)
| Section | Valuation date |
|---|---|
| Section 92 | The date on which the property or consideration referred to in section 92 is received by the assessee |
| Section 79 | The date on which the capital asset, being a share of a company other than a quoted share, referred to in section 79, is transferred |
| Section 26(2)(j) | The date on which the inventory is converted, or treated, as a capital asset |
The same shares can therefore carry different valuation dates depending on the provision in play — receipt for section 92, transfer for section 79, conversion for section 26(2)(j). Applying the wrong date is a substantive error, not a technicality, because the balance sheet requirement in rule 56(a) hangs off it.
How the 1962 rules map across
| Point | 1962 Rules | 2026 Rules |
|---|---|---|
| Definitions | Rule 11U | Rule 56 |
| Method of determination | Rules 11UA and 11UAA | Rule 57 |
| Registered valuer source | Wealth-tax rules lineage | Section 513 |
| Merchant banker | Category I SEBI | Category I SEBI |
| Slump sale FMV | Rule 11UAE | Rule 53 |
| Accreted income valuation | Rule 17CB | Rule 189 |
| Prescribed classes of persons | Rules 11UAC and 11UAD | Rule 58 |
Compliance checklist
- Identify the section first — column B of the Table decides which row applies.
- Fix the valuation date from rule 56(i) before doing anything else.
- Arrange an audited balance sheet drawn up on the valuation date where the Sl. No. 4 formula is in play.
- Use a registered valuer for jewellery and artistic work; a merchant banker or accountant for unquoted non-equity securities.
- Keep a negative reserves and surplus figure out of L.
- For immovable property, take the stamp duty value on the valuation date, not the agreement value.
- Read Sl. No. 3(b) and the opening of the Sl. No. 4 formula in the book — they are not reproduced here.
- Cite rules 56 and 57, not rules 11U, 11UA and 11UAA.
Common mistakes
- Using the last annual audited balance sheet instead of one drawn up on the valuation date.
- Adding accumulated losses back into L.
- Deducting the full provision for taxation rather than only the excess over tax payable on book profits.
- Getting a registered valuer report for unquoted non-equity securities where the rule names a merchant banker or accountant.
- Using the transaction date as the valuation date for a section 92 receipt — the rule says the date of receipt.
- Treating limb (c) of Sl. Nos. 1 and 2 as mandatory. It says "may".