Rule 11UA Is Gone. Meet Rule 57.

The rule behind every share valuation you have ever commissioned has been renumbered, restructured and quietly trimmed. Here is what survived, what did not, and what it means the next time you sign a share transfer form.

Sell shares in your private company. Bring an investor onto the cap table. Move shares between two group entities to clean up a holding structure. Do any of these, and sooner or later someone will tell you to get a valuation done.

For over a decade, the rule behind that advice was Rule 11UA.

From 1 April 2026, it is Rule 57.

The Income-tax Act, 1961 and the Income-tax Rules, 1962 have given way to the Income-tax Act, 2025 and the Income-tax Rules, 2026. The section numbers you knew have moved. The rule numbers have moved. Separately, and a year earlier, the choice of valuation methods that practitioners had grown used to for unquoted equity shares had already fallen away.

This article covers what Rule 57 does, when it lands on your desk, and how a value is arrived at for each kind of share. No familiarity with the old rule is assumed.

Key Takeaways

• Rule 11UA is now Rule 57, and Rule 11U is now Rule 56, under the Income-tax Rules, 2026 – notified 20 March 2026, effective 1 April 2026.
• Rule 57 taxes nothing on its own. It is triggered by section 92(2)(m), section 79 read with section 72, and section 26(2)(j).
• Unquoted equity shares have one method and no alternative: (A + B + C + D − L) × PV ÷ PE. The DCF option fell away with the tax on share premium, a year before the new law.
• Unquoted preference shares, debentures and other securities are not covered by the formula. They are valued at open market price, supported by a report from a chartered accountant or a SEBI Category I merchant banker.
• Listed does not mean quoted. Regular quotation from genuine trades is required, and the unquoted category is far wider than most people assume.
• The valuation date is fixed by the rule, not by your agreement, board resolution or report date.
• The old Rule 11U fallback to the last AGM balance sheet has not been carried forward, so financials as on the valuation date now need to be prepared and certified.
• Price a private company’s shares off its balance sheet and you risk tax at both ends – substituted consideration for the seller, income from other sources for the buyer.

1. First, the Renumbering

The new Rules were notified on 20 March 2026 and took effect from 1 April 2026. If you think in the old numbers, this is your translation key.

You knew it as	It is now	What it deals with
Rule 11U	Rule 56	The definitions: what counts as quoted, which balance sheet to use, which date to value on
Rule 11UA	Rule 57	The actual valuation methods
Rule 11UAA	Part of Rule 57	Valuing unquoted shares sold below their worth
Rule 11UAB	Part of Rule 57	Valuing stock-in-trade when it becomes a capital asset
Section 56(2)(x)	Section 92(2)(m)	Tax when you receive property free or too cheap
Section 50CA	Section 79	Tax when you transfer unquoted shares below fair value
Section 28(via)	Section 26(2)(j)	Tax when stock-in-trade is converted into a capital asset

A rule you can actually read

Rule 11UA was a long chain of sub-clauses, each pointing somewhere else. Rule 57 does the same job as a single table of seven rows. Find the row matching your asset, and the last column tells you how to value it. That is the entire rule.

One route, not five

One point often gets attributed to the new law, so it is worth placing correctly.

Rule 11UA once offered unquoted equity shares a choice. Alongside the fixed formula sat a menu of methods, DCF among them, available where shares were issued at a premium. That menu had already gone before the new law arrived:the Finance (No. 2) Act, 2024 withdrew the tax on share premium under the old Act with effect from assessment year 2025-26, and the machinery built to serve it fell away with it.

The Income-tax Rules, 2026 have simply not revived it. So for unquoted equity shares, Rule 57 gives you a formula, and only a formula.

2. When Does Rule 57 Land On Your Desk?

Rule 57 does not tax anybody. It is a measuring instrument. It comes into play only when some other section of the Act needs to know what something is worth.

There are four such moments. Rule 57’s own table names three of them – sections 92, 72 and 26(2)(j); section 79 reaches Rule 57 by deeming its figure to be the consideration for section 72. Find yours in the first column.

The situation you are in	Section	What the law does	Valuation date
You receive shares or securities for less than they are worth. An investor exits and sells his stake to a co-founder at cost. A settlement is squared off in shares rather than cash.	Section 92(2)(m)	The gap between what you paid and what the shares are worth becomes your income, once it crosses Rs. 50,000.	The day you receive the shares or securities
You transfer unquoted shares at a price the two of you settled between yourselves, below fair value.	Section 79	Your actual price is set aside. Fair market value is substituted as your sale consideration. Applies only to shares other than quoted shares.	The day of transfer
Your capital gains are then computed on that substituted figure.	Section 72	Works hand in hand with section 79: that section supplies the number, this one taxes it.	Same as above
Your business converts stock-in-trade into a capital asset. A developer moves a completed floor from inventory to investment.	Section 26(2)(j)	Fair market value on the conversion day is treated as business income.	The day of conversion

If none of these four describe your situation, Rule 57 has nothing to say to you. If one of them does, the rest of this article is about how the number gets worked out.

3. Why a Valuation At All?

Notice that every operative question in the four situations above is answered by a valuation. Did the consideration fall short of what the shares are worth? Does that shortfall cross Rs. 50,000? What figure replaces the price you actually agreed? Each of these is a fair market value determination, and the Act itself leaves the answer to be worked out in the manner prescribed by the Rules.

In other words, fair market value is not a downstream computation that follows liability. It is the hinge on which liability turns. Get the valuation wrong and you can misjudge whether the provision applies at all, or over-report or under-report the taxable amount. This is why the methodology prescribed in Rule 57 deserves close reading rather than a glance.

4. The Definitions That Decide Everything

Rule 56 holds the definitions Rule 57 runs on. Skip them and you will apply the wrong row of the table, which is the most expensive mistake available in this area.

When is a share actually ‘quoted’?

The intuitive answer, being listed, is wrong. The rule asks for three things together:

• It is quoted on a recognised stock exchange.
• It is quoted there with regularity.
• Those quotations come from real trades made in the ordinary course of business.

A scrip that trades once a fortnight in negligible volume is listed but arguably not quoted. Anything failing this test is unquoted, and that category is far wider than most people assume.

Which balance sheet?

Rule 56 defines ‘balance sheet’ as the one drawn up on the valuation date, including the notes forming part of the accounts, audited by the company’s auditor. For a foreign company, the equivalent under the law of its home country, if an auditor has been appointed there.

Now the practical problem. Companies close their books once a year. A share transfer on 14 August will almost never have an audited balance sheet as on 14 August sitting ready.

Worth knowing: the old Rule 11U carried an express fallback for exactly this situation, allowing the last balance sheet adopted in the annual general meeting to be used where none was drawn up on the valuation date. That fallback does not appear anywhere in the Income-tax Rules, 2026.

What happens in practice is that companies prepare financial statements as on the valuation date, drawn from audited annual accounts and rolled forward, and have them certified. Where a transaction is significant or the gap from the last audit is wide, a limited review or a special-purpose audit as on the valuation date puts the matter beyond argument. The closer the supporting statement is to the standard the rule describes, the less there is to discuss if the valuation is ever examined.

What is the valuation date?

It depends on why you are valuing:

• Receiving property or securities under section 92: the day you receive it.
• Transferring unquoted shares under section 79: the day of transfer.
• Converting stock-in-trade under section 26(2)(j): the day of conversion.

The date of the share purchase agreement, the board resolution, or the valuation report itself does not enter into it.

Who is a merchant banker?

• A Category I merchant banker registered with SEBI. No other category qualifies.

What are securities?

• The expression takes its meaning from the Securities Contracts (Regulation) Act, 1956, so it reaches well beyond equity shares: debentures, preference shares, bonds and similar instruments all fall within it.

5. How Each Kind of Share Is Valued

Two questions, in order. Is it quoted or unquoted? If unquoted, is it an equity share or something else?

	Equity shares	Preference shares, debentures, other securities
Quoted	Exchange trade price. If off-market, the lowest quoted price that day. If it did not trade that day, the lowest price on the last day it actually traded.	Identical. The rule treats all quoted securities the same way, equity or not.
Unquoted	A prescribed formula. No alternative method available.	Open market price on the valuation date. The assessee may obtain a report from a chartered accountant or a merchant banker.

Notice the top-right box. There is no special treatment for quoted debentures or quoted preference shares. Once an instrument is quoted, its character stops mattering.

Quoted securities: a three-step waterfall

Take the first step that fits your facts.

• Traded on the exchange? Use the transaction value recorded there.
• Transferred off-market? Use the lowest price quoted on any recognised stock exchange on the valuation date.
• No trading that day? Go back to the last date the security actually traded and take the lowest price on that date.

It is the lowest price of the day, not the closing price and not an average. And that third step reaches back to the last day of genuine trading, which for an illiquid security can be weeks earlier.

Illustration 1 (hypothetical): quoted debentures that did not trade

On 12 August 2026, Rohan Mehta transfers 500 listed non-convertible debentures of ABC Infra Limited to Kavita Deshpande. The transfer is executed off-market, through their depository participants, at Rs. 700 per debenture.

On 12 August, ABC Infra’s debentures see no trading on any exchange, though the exchanges themselves are open. Working backwards, the last day these debentures actually traded was 6 August 2026, when their lowest quoted price was Rs. 985.

Debentures are securities, and these are quoted, so the quoted row applies whether or not they are equity. The transfer was off-market, so there is no exchange price. The valuation date itself yields nothing. So the fair market value is Rs. 985 per debenture, taken from 6 August.

Particulars	Amount (Rs.)
Fair market value: 500 debentures x Rs. 985	4,92,500
Consideration paid by Kavita: 500 x Rs. 700	3,50,000
Shortfall	1,42,500

The shortfall of Rs. 1,42,500 crosses Rs. 50,000, so it is taxable in Kavita’s hands as income from other sources. The six-day gap between the transfer and the last trading date makes no difference. The rule sends you back to the last day of real trading, however far back that falls.

For unquoted equity shares, the rule prescribes one method:

(A + B + C + D  –  L)  x  PV / PE

The idea underneath is simple: work out what the company is really worth, subtract what it genuinely owes, take your slice of what is left.

It is not simply net worth off the balance sheet, because book values are unreliable for certain assets. Property bought in 2004 still sits at its 2004 cost. So the formula pulls out four asset classes and replaces their book values with market-referenced ones.

Term	What it means
A	Book value of the ordinary assets: plant, receivables, inventory, cash and the rest. Two deductions follow. Income-tax paid comes off (net of refund claimed). So does anything in the assets column that is not really an asset, such as preliminary expenses or unamortised deferred expenditure.
B	Jewellery and artistic work, taken at open market value rather than book value, supported by a report from a registered valuer.
C	Shares and securities the company holds, valued under Rule 57 itself. If your company holds unquoted equity shares in another company, the formula has to be run for that company first.
D	Immovable property, at the stamp duty value adopted or assessable by the government authority, in place of book value.
L	What the company genuinely owes to outsiders. Several items in the liabilities column are deliberately excluded.
PV / PE	Your slice. PV is the paid-up value of the shares being valued; PE is the company’s total paid-up equity capital.

What stays out of L

This is where valuations most often go wrong. These sit in the liabilities column but are not subtracted:

• Paid-up equity capital and reserves and surplus. These are the shareholders’ own funds, which is precisely what you are valuing. They stay out even when reserves are negative. The one carve-out: reserves set apart towards depreciation are not excluded, and so are deducted.
• Dividends proposed but not declared in general meeting. Until shareholders approve, the company owes nobody.
• Provisions for unascertained liabilities. A provision for a disputed claim is an estimate, not a debt.
• Contingent liabilities. Guarantees given, for instance. The single exception is arrears of dividends on cumulative preference shares, which do come off.
• Excess provision for taxation. Only tax payable on book profits is subtracted; anything provided beyond that is excluded.

Illustration 2 (hypothetical): valuing shares of XYZ Textiles Private Limited

On 5 September 2026, Sameer Joshi agrees to transfer 1,50,000 equity shares of XYZ Textiles Private Limited to Nikhil Rao. The company’s paid-up equity capital is Rs. 1 crore, divided into 10,00,000 shares of Rs. 10 each.

Here is how the formula assembles the value. The left column is what goes in; the right column is what comes out.

	What goes into it	Amount (Rs.)
A	Book value of inventory, trade receivables, plant, cash and bank balances and the like, adjusted for income-tax paid and for items carried as assets that are not really assets.	1,75,00,000
B	Jewellery held by the company. Book value Rs. 10,00,000, taken instead at its open market value of Rs. 14,00,000 per the registered valuer’s report.	14,00,000
C	Shares held in PQR Polymers Private Limited, an unquoted company. Book cost Rs. 25,00,000, but valued afresh under Rule 57 in its own right.	41,00,000
D	Land and building. Book value Rs. 1,20,00,000, taken instead at the stamp duty value assessed by the State authority.	1,95,00,000
	Gross value (A + B + C + D)	4,25,00,000
L	Bank borrowings, trade payables and tax genuinely payable on book profits. Equity capital, reserves, the undeclared dividend, the provision against a disputed claim and the guarantee given all stay out.	(1,49,00,000)
	Net value of the company	2,76,00,000
	PV / PE (Rs. 15,00,000 / Rs. 1,00,00,000)	0.15
	Fair market value of Sameer’s 1,50,000 shares	41,40,000
	Fair market value per share	27.60

What the balance sheet would have told them

Share capital of Rs. 1 crore plus reserves of Rs. 60 lakh gives a net worth of Rs. 1.60 crore, or Rs. 16 a share. The formula produces Rs. 27.60. The two figures sit over seventy per cent apart.

Most of that gap is the property, where a stamp duty value of Rs. 1.95 crore displaced a book value of Rs. 1.20 crore. The rest comes from the jewellery and the PQR Polymers stake being marked to fair value, and from provisions that were never real debts staying out of L.

Two things in that table are easy to underestimate. The PQR Polymers holding could not simply be picked up at cost: Rule 57 had to be run over that company first, meaning two valuations sat behind one share transfer. And the exclusions from L are not housekeeping. Had the disputed claim, the undeclared dividend and the guarantee been subtracted, the value would have fallen by nearly Rs. 48 lakh [VERIFY] and the whole valuation would have been wrong.

Had Sameer and Nikhil priced the deal off the balance sheet at Rs. 16 a share, they would have transacted at Rs. 24 lakh against a fair market value of Rs. 41.40 lakh. Sameer’s capital gains would have been recomputed on the higher figure, and Nikhil would have carried the Rs. 17.40 lakh difference as income from other sources. One valuation, tax at both ends.

Illustration 3 (hypothetical): unquoted preference shares

On 20 October 2026, Priya Nair transfers 50,000 compulsorily convertible preference shares of LMN Foods Private Limited to Aditya Kulkarni at Rs. 60 per share.

These are shares. They are unquoted. But they are not equity shares, so the formula does not touch them. They fall in the last row of the table instead, where the value is the price the shares would fetch in the open market on the valuation date – a figure the assessee may support with a report from a chartered accountant or a merchant banker.

LMN Foods engages a chartered accountant, who values the company on a DCF basis at Rs. 42 crore and, working through the terms of the CCPS, arrives at Rs. 95 per preference share.

Particulars	Amount (Rs.)
Fair market value per the valuation report	95 per share
Fair market value of 50,000 shares	47,50,000
Consideration paid by Aditya: 50,000 x Rs. 60	30,00,000
Shortfall taxable in Aditya’s hands	17,50,000

Two points. The valuer’s approach is not dictated by the rule, so the terms of the instrument do the work: the conversion ratio, the dividend entitlement, and where the shares rank on liquidation. A CCPS converting at a fixed ratio tracks the underlying equity closely; one with a distant or conditional conversion does not.

And the more common error is worth naming: applying the equity formula to preference shares because they are, after all, shares of a company. The formula is confined to equity shares.

6. Who Can Do the Valuation?

For unquoted shares and securities other than equity shares, Rule 57 says the valuation report may be obtained from an accountant or a merchant banker.

• Accountant takes its meaning from section 515(3)(b) of the Income-tax Act, 2025: a chartered accountant holding a valid certificate of practice, and independent of the assessee. A CA who is an officer, employee, partner or close relation of the assessee, or who could not audit the company, is out. The heavier conditions the 2026 Rules attach to an accountant elsewhere – ten years in practice, and annual receipts above Rs. 50 lakh individually or Rs. 3 crore for the firm – belong to rules 11 and 12 and to the safe harbour rules. They do not reach Rule 57.
• Merchant banker means a Category I merchant banker registered with SEBI.

Either report satisfies the rule. In practice the chartered accountant is usually the natural choice, because valuing an unquoted security means working through the financials, the instrument’s terms and the company’s transaction history, all of which a CA is normally already close to.

Where we come in

At Myvaluation, valuations under Rule 57 are handled by Parth Shah, a Chartered Accountant and a Registered Valuer [VERIFY]. That combination matters in this area: the CA qualification satisfies the rule, and the Registered Valuer registration brings the discipline the rule expects but does not spell out, namely a report that sets out its basis, its valuation date and the material relied upon, so it holds up when it is examined rather than when it is filed.

If you have a share transfer, an investment round or a group restructuring on the table, we can tell you where you stand before the price is agreed rather than after.

7. Where Valuations Go Wrong

If you are reviewing a Rule 57 valuation, run it against this list.

• The wrong balance sheet. The rule looks to financials as on the valuation date. Last March’s accounts, used without adjustment, invite a question.
• The wrong valuation date. It is fixed by the rule and differs by situation. Agreement date, board resolution date and report date are all irrelevant.
• A thinly traded scrip treated as quoted. Listing alone does not satisfy the definition. Regular quotation from genuine trades is required.
• The equity formula applied to preference shares. They belong in the valuation report row, not the formula.
• Investments taken at book value. Component C requires shares held by the company to be valued under Rule 57 in their own right, which may mean running the formula twice.
• Exclusions from L mishandled. Reserves stay out even when negative, except those set apart towards depreciation. Only excess provision for tax is excluded. Contingent liabilities stay out, except arrears on cumulative preference shares.
• Only one side considered. Transfer unquoted shares below fair value and there are consequences for the buyer as well as the seller. Both need working out before the price is agreed.

8. In Short

Rule 57 is Rule 11UA rebuilt as a single table. For most assets the answer is the answer you would have reached before. For unquoted equity shares, one formula now does the work that a menu of methods once shared.

If a share transaction is in front of you, the sequence is short:

• Test whether the security is genuinely quoted, rather than assuming that listed means quoted.
• If unquoted, establish whether it is an equity share or something else. That decides between the formula and a valuation report.
• Fix the valuation date from the rule, not your calendar, and line up financials as on that date.
• Value the company’s own shareholdings under Rule 57 rather than carrying them at book value.
• Work out the tax position of both parties before the price is agreed.

And resist pricing a private company’s shares off its balance sheet. As XYZ Textiles showed, book value and fair market value can sit seventy per cent apart, and that gap is a tax exposure waiting quietly on both sides of the deal.

9. Frequently Asked Questions

What is Rule 57 of the Income-tax Rules, 2026?

Rule 57 prescribes how fair market value is determined for property, shares and securities under the Income-tax Act, 2025. It is built as a single table: find the row matching your asset, and the last column tells you how to value it. It replaces Rule 11UA of the Income-tax Rules, 1962 and applies from 1 April 2026.

Has Rule 11UA been replaced by Rule 57?

Yes. Rule 11UA is now Rule 57, and Rule 11U (the definitions) is now Rule 56. Rules 11UAA and 11UAB have been absorbed into Rule 57 rather than kept as separate rules. The Income-tax Rules, 2026 were notified on 20 March 2026 and took effect from 1 April 2026.

When does a Rule 57 valuation become necessary?

Rule 57 taxes nothing on its own. It is triggered when another provision needs a fair market value: section 92(2)(m), where you receive shares or securities for less than they are worth; section 79 read with section 72, where unquoted shares are transferred below fair value; and section 26(2)(j), where stock-in-trade is converted into a capital asset.

What is the formula for valuing unquoted equity shares under Rule 57?

The fair market value is (A + B + C + D – L) x PV / PE. A is the adjusted book value of ordinary assets, B is jewellery and artistic work at open market value, C is shares and securities valued under Rule 57 in their own right, and D is immovable property at stamp duty value. L is what the company genuinely owes to outsiders, and PV / PE apportions the result to the shares being valued.

Can DCF be used to value unquoted equity shares under Rule 57?

No. Rule 57 gives one formula for unquoted equity shares and offers no alternative method. The menu of methods that included DCF was attached to the tax on share premium, which the Finance (No. 2) Act, 2024 withdrew with effect from assessment year 2025-26. The Income-tax Rules, 2026 have not revived it.

What is the valuation date under Rule 57?

It is fixed by the rule and depends on the trigger: the day you receive the property or securities under section 92, the day of transfer under section 79, and the day of conversion under section 26(2)(j). The date of the share purchase agreement, the board resolution or the valuation report itself is irrelevant.

Which balance sheet is used for a Rule 57 valuation?

Rule 56 asks for the balance sheet drawn up as on the valuation date, including the notes forming part of the accounts, audited by the company’s auditor. The express fallback in the old Rule 11U to the last balance sheet adopted in the annual general meeting does not appear in the Income-tax Rules, 2026, so financials as on the valuation date are ordinarily prepared and certified.

Who can issue a valuation report under Rule 57?

For unquoted shares and securities other than equity shares, the report may be obtained from an accountant or a merchant banker. An accountant, per section 515(3)(b) of the Income-tax Act, 2025, is a chartered accountant holding a valid certificate of practice and independent of the assessee. A merchant banker means a Category I merchant banker registered with SEBI.

How are unquoted preference shares such as CCPS valued under Rule 57?

At the price they would fetch in the open market on the valuation date, which the assessee may support with a report from a chartered accountant or a merchant banker. The equity share formula does not apply to them. The terms of the instrument do the work instead: the conversion ratio, the dividend entitlement and where the shares rank on liquidation.

Is a listed share always treated as quoted under Rule 57?

No, and this is a common and expensive error. Rule 56 requires three things together: quotation on a recognised stock exchange, quotation with regularity, and quotations arising from real trades in the ordinary course of business. A thinly traded scrip can be listed and still unquoted, which moves it into the formula or the valuation report row.

What happens if unquoted shares are transferred below fair market value?

Both sides are affected. For the seller, section 79 substitutes fair market value for the actual price as the sale consideration, and capital gains are computed on that figure under section 72. For the buyer, the shortfall between what was paid and fair market value is taxable under section 92(2)(m) once it crosses Rs. 50,000.

Are contingent liabilities deducted in the Rule 57 formula?

No. Contingent liabilities stay out of L, the single exception being arrears of dividend on cumulative preference shares. Paid-up equity capital and reserves, dividends proposed but not declared in general meeting, provisions for unascertained liabilities and any excess provision for taxation also stay out. Reserves set apart towards depreciation are the carve-out and are deducted.

Do I need an IBBI Registered Valuer for a Rule 57 valuation?

Rule 57 itself asks only for an accountant or a merchant banker, so a Registered Valuer registration is not what the rule tests. It is required separately for valuations under section 247 of the Companies Act, 2013. In practice the same transaction often needs both, and a report that meets Registered Valuer standards of disclosure tends to hold up better if the income-tax valuation is examined.

This article is based on the Income-tax Act, 2025 and the Income-tax Rules, 2026 as notified on 20 March 2026, read with the Income-tax Act, 1961 and the Income-tax Rules, 1962. All names, companies, dates and figures in the illustrations are hypothetical and are used only to show how the provisions work. This is general information and not advice on any particular transaction.