Rule 11: Asset valuation for indirect transfers
Rule 11 prescribes the fair market value methods used under section 9(10) for assets held directly or indirectly by a foreign company or entity. Different methods apply to listed shares, unlisted shares, partnership interests, other assets and the foreign entity’s total assets.
Official notified Income-tax Rules, 2026Need advice on Rule 11?
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On this page
- Bare law
- Listed Indian shares and control holdings
- Unlisted shares, partnerships and other assets
- Value the foreign entity’s total assets using the table
- Include the full business behind an Indian share or interest
- Reconcile interim statements and currency
- Illustrative control-holding formula
- Key takeaways
- Practical checklist
- FAQs
- Official sources
- Related rules
Bare law
Rule 11 - Fair market value of assets in certain cases
(1) The fair market value of asset, tangible or intangible, as on the specified date, held directly or indirectly by a foreign company or entity, for the purposes of section 9(10) shall be computed as per this rule with reference to the specified date.
(2) Where the asset is a share of an Indian company listed on a recognised stock exchange on the specified date, the fair market value of the share shall be the observable price of such share on the stock exchange so, however, that — (a) if the share is held as part of the shareholding which confers, directly or indirectly, any right of management or control in the said company, the fair market value of the share shall be determined using the following formula: — Fair market value = (A+B)/C Where, — A = the market capitalisation of the company on the basis of observable price of its shares quoted on the recognised stock exchange; B = the book value of liabilities of the company; and C = the total number of outstanding shares; or (b) if, on the specified date, the share is listed on more than one recognised stock exchange, the observable price of the share shall be computed with reference to the recognised stock exchange which records the highest volume of trading in the share during the tax year.
(3) Where the asset is a share of an Indian company not listed on a recognised stock exchange on the specified date, the fair market value of the share shall be — (a) the fair market value as determined by a merchant banker or an accountant as per any internationally accepted valuation methodology for valuation of shares on arm's length basis; and (b) increased by the liability, if any, considered in such determination as per clause (a).
(4) Where the asset is an interest in a partnership firm or an association of persons, its fair market value shall be determined in the following manner: — (a) the value of such firm or association of persons, shall be determined by a merchant banker or an accountant as per any internationally accepted valuation methodology as increased by the liability, if any, considered in such determination; (b) the value so computed in clause (a), as is equal to the amount of its capital, shall be allocated among its partners or members in the same proportion in which the capital has been contributed by them; (c) the residue of the value shall be allocated among the partners or members as per the agreement of partnership firm or association of persons for distribution of assets in the event of dissolution of the firm or association; (d) in the absence of agreement, as specified in clause (c), the residual value shall be allocated in proportion in which the partners or members are entitled to share profits; and (e) the sum total of the amount so allocated as per clauses (a) to (d) to a partner or member shall be treated as the fair market value of the interest of that partner or member in the firm or the association of persons, as the case may be.
(5) The fair market value of the asset other than those referred to in sub-rules (2), (3) and (4) shall be the price it would fetch, if sold in the open market as determined by a merchant banker or an accountant and increased by the liability, if any, considered in such determination.
(6) The fair market value of all the assets of a foreign company or an entity on the specified date, if conditions specified in column B of the following Table are fulfilled, shall be determined as per column C thereof: —
Table Sl. No. (A) Conditions (B) Fair Market Value (C) 1. Where the transfer of share of, or interest in, the foreign company or entity is between the persons who are not connected persons, for the purpose of such transfer. Fair market value of all assets = A+B Where, — A = Market capitalisation of the foreign company or entity computed on the basis of the full value of consideration for transfer of the share or interest; and B = book value of the liabilities of the company or the entity as on the specified date as certified by a merchant banker or an accountant. 2. Where the share of the foreign company or entity is listed on a stock exchange on the specified date. Fair market value of all the assets = A+B Where, — A = Market capitalisation of the foreign company or entity computed on the basis of the observable price of the share on the stock exchange where the share of the foreign company or the entity is listed; and B = book value of the liabilities of the company or the entity as on the specified date. 3. Where the share is listed on more than one stock exchange on the specified date. Fair market value of all the assets = A+B Where, — A = Market capitalisation of the foreign company or entity computed on the basis of the observable price of the share on the stock exchange which records the highest volume of trading in the share during the period considered for determining the price; and B = book value of the liabilities of the company or the entity. 4. Where the share in the foreign company or entity is not listed on a stock exchange on the specified date. Fair market value of all the assets = A+B Where, — A = fair market value of the foreign company or the entity as on the specified date as determined by a merchant banker or an accountant as per the internationally accepted valuation methodology; and B = value of liabilities of the company of the entity if any, considered for the determination of fair market value in A. (7) Where fair market value has been determined on the basis of any interim balance sheet referred to in rule 10(b)(ii), then the fair market value shall be appropriately modified after finalisation of the relevant financial statement as per the applicable laws and all the provisions of this rule and rules 12 and 235 shall apply accordingly.
(8) For determining the fair market value of any asset located in India, being a share of an Indian company or interest in a partnership firm or association of persons, all the assets and business operations of the said company or partnership firm or association of persons shall be taken into account whether such assets or business operation are located in India or outside.
(9) The rate of exchange for calculation in foreign currency, of the value of assets located in India and expressed in rupees shall be the telegraphic transfer buying rate of such currency as on the specified date.
Rule breakdown
Listed Indian shares and control holdings
For a listed Indian share, start with observable price as defined in Rule 10. Where the holding confers management or control, sub-rule (2)(a) uses (A + B) / C: market capitalisation based on observable price, plus book-value liabilities, divided by outstanding shares. For a share listed on multiple recognised exchanges, the rule identifies the exchange with the highest trading volume during the tax year.
Unlisted shares, partnerships and other assets
An unlisted Indian share uses a merchant-banker or accountant valuation under an internationally accepted arm’s-length method, increased by liabilities considered in that determination. A partnership or association interest first allocates the capital amount in contribution proportions, then allocates the residue by the dissolution agreement or, absent that agreement, profit-sharing proportions. Other assets use the prescribed open-market-price valuation with the stated liability adjustment.
Value the foreign entity’s total assets using the table
The table addresses a transfer between persons who are not connected, a listed foreign share, multiple-exchange listing and an unlisted foreign share. Its formulae distinguish market capitalisation or professional valuation from the relevant liability component. Match the actual facts to the table and retain the supporting consideration, market-price, exchange-volume or valuation evidence; do not apply one formula indiscriminately.
Include the full business behind an Indian share or interest
When valuing an Indian-company share or an interest in a partnership or association, sub-rule (8) requires all its assets and business operations to be considered, whether located in India or outside. This valuation instruction should not be confused with treating every underlying asset as located in India for every other provision.
Reconcile interim statements and currency
If the value was determined using the interim balance sheet described in Rule 10(b)(ii), appropriately modify it after finalisation and apply the referred Rules 12 and 235 consequences. For calculation in foreign currency of rupee-expressed Indian asset values, use the specified-date telegraphic transfer buying rate.
Illustrative control-holding formula
Hypothetical: observable-price market capitalisation is ₹90 crore, defined book-value liabilities are ₹30 crore and there are one crore outstanding shares. The sub-rule (2)(a) formula gives ₹120 per share. The example illustrates that particular valuation formula; it does not establish that the transfer is taxable or that every holding uses the control-holding method.
Key takeaways
Specified-date valuation
The computation is made with reference to the specified date, using Rule 10 definitions.
Asset-specific methods
A listed minority share, control holding, unlisted share and partnership interest do not all use the same formula.
Liabilities and final accounts
Several methods add back liabilities considered in valuation, and interim-based values require appropriate modification after finalisation.
Practical checklist
- Classify every asset and document the relevant valuation limb.
- Check control rights and whether parties are connected.
- Reconcile liabilities consistently with Rule 10 and the selected method.
- Retain provisional-to-final valuation adjustments and currency evidence.
Avoid
- Do not deduct liabilities again where the rule requires them to be added back.
- Do not ignore overseas operations when valuing the specified Indian share or interest.
FAQs
Does every listed share use the closing price on the specified date?
No. The rule uses defined observable price and adds a separate formula where the holding confers management or control.
Can the value change after final financial statements are available?
Yes. Sub-rule (7) requires appropriate modification where the value was based on the specified interim balance sheet.
Does Rule 11 decide taxability by itself?
No. It supplies valuation methods for the cited section 9(10) framework. The applicable charge, conditions, exclusions and income attribution require separate analysis.