The Income Tax Rules, 2026 introduce a transformative framework for determining Fair Market Value through Rule 57, consolidating disparate valuation methodologies into a single, table-based provision. This represents a significant simplification from the fragmented approach under the 1962 Rules, bringing clarity and standardisation to what has historically been a contentious area of tax litigation.
The Architecture of Rule 57
Rule 57 establishes a structured framework for FMV determination across eight distinct asset classes. The rule applies for the purposes of Sections 92 (income from other sources), 79 (transfer of shares), and 26(2)(j) (conversion of inventory to capital asset). Each asset class has a prescribed valuation method, with the overarching principle being the price the asset would fetch in the open market on the valuation date.
Jewellery Valuation
For jewellery, the rule prescribes a cascading methodology. The primary method is the open market price on the valuation date. If the jewellery is acquired by purchase from a registered dealer on the valuation date, the invoice value prevails. Where jewellery is received through any other mode and its value exceeds ₹5,00,000, the assessee may obtain a report from a registered valuer. The ₹5,00,000 threshold provides a practical filter, allowing smaller transactions to proceed without the cost and delay of professional valuation.
Artistic Works
Archaeological collections, drawings, paintings, sculptures, and works of art follow the same methodology as jewellery. The open market price is the primary measure, with invoice value applying for registered dealer purchases, and registered valuer reports available for items exceeding ₹5,00,000 received through other means. This uniform treatment recognises the similar challenges in valuing unique, non-fungible assets.
Quoted Shares and Securities
For quoted shares and securities, the rule distinguishes between exchange-traded and off-market transactions. Where a transaction is carried out through a recognised stock exchange, the FMV is the transaction value recorded in that exchange. For off-market transactions, the FMV is the lowest quoted price on the valuation date on any recognised stock exchange. If there is no trading on the valuation date, the lowest price on the immediately preceding trading date applies. This approach ensures that off-market transactions are not undervalued by reference to stale or manipulated prices.
Unquoted Equity Shares
Unquoted equity shares are valued using a prescribed formula:
FMV = (A + B + C + D − L) × (PV ÷ PE)
Where:
- A = Book value of all assets (other than jewellery, artistic works, shares, securities, and immovable property) appearing in the balance sheet, reduced by income-tax paid (net of refund claimed) and any unamortised deferred expenditure
- B = Price jewellery and artistic works would fetch in the open market based on a registered valuer's report
- C = FMV of shares and securities as determined under the rule
- D = Stamp duty value of immovable property
- L = Book value of liabilities (excluding paid-up equity capital, unpaid dividends, reserves and surplus, provisions for taxation, provisions for unascertained liabilities, and contingent liabilities)
- PV = Paid-up value of equity shares
- PE = Total paid-up equity share capital
The formula adopts a net asset value approach, adjusting book values to fair market values for specified asset classes. The exclusion of reserves, surplus, and unascertained liabilities from the liability side ensures that the valuation reflects the economic value of the enterprise rather than accounting conventions.
Unquoted Shares (Other than Equity)
Unquoted shares and securities other than equity shares are valued at the price they would fetch in the open market, determined by a merchant banker or an accountant. The merchant banker requirement ensures professional expertise in valuing instruments such as preference shares, debentures, and bonds that may have complex features.
Immovable Property
Immovable property is valued at the stamp duty value adopted, assessed, or assessable by any government authority for stamp duty purposes. This alignment with stamp duty values creates consistency across tax and registration frameworks.
Other Property
Any other property not covered in the preceding categories is valued at its ordinary open market price on the valuation date. This catch-all provision ensures that no asset class falls outside the valuation framework.
Valuation Date
The valuation date varies by section【56†L0】:
- Section 92: Date on which the property or consideration is received by the assessee
- Section 79: Date on which the capital asset is transferred
- Section 26(2)(j): Date on which inventory is converted into, or treated as, a capital asset
Practical Considerations
The Rule 57 framework significantly reduces the scope for disputes by providing clear, objective methodologies for each asset class. Practitioners should ensure that:
- Registered valuer reports are obtained where the ₹5,00,000 threshold is exceeded
- Stamp duty values are correctly referenced for immovable property
- The formula for unquoted equity shares is applied with all adjustments correctly made
- The appropriate valuation date is identified for each transaction
Expert Legal Guidance
Understanding the Rule 57 valuation framework is essential for tax compliance in transactions involving capital assets. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping taxpayers determine correct FMV and avoid disputes with tax authorities.