Draft Rules 188 and 189 of the Draft Income-tax Rules, 2026 prescribe compliance and valuation mechanisms for registered non-profit organisations and specified persons. Rule 188 mandates that the audit report required under section 348 must be furnished in Form No. 112 at least one month prior to the due date for filing the return of income under section 263(1), thereby advancing audit compliance timelines.
Rule 189 lays down a comprehensive framework for determining the fair market value (FMV) of assets and liabilities for computing accreted income under section 352(2). The aggregate FMV of total assets is calculated based on balance sheet values, adjusted for tax paid and exclusion of non-representative assets such as unamortised deferred expenditure. Detailed valuation methodologies are provided for quoted shares (based on stock exchange averages), unquoted equity shares (through a prescribed net asset value formula), other securities (based on merchant banker or accountant valuation), immovable property (higher of open market value or stamp duty value), business undertakings (net asset method), and other assets (registered valuer-based valuation). The rule also specifies exclusions while determining total liabilities, such as corpus funds, reserves, contingent liabilities, and excess tax provisions. It further defines key terms including merchant banker, registered valuer, specified person, specified date, and tax paid. Collectively, these provisions standardise audit timelines and establish a structured, valuation-driven mechanism for computing accreted income.
Extract of Rule No. 188, 189 of Draft Income-tax Rules, 2026
Rule 188
Report of audit in the case of registered non-profit organisations under section 348 of the Act.
The report of the audit of the accounts, required to be furnished under section 348, shall be furnished in Form No. 112, one month prior to the due date of furnishing the return of income under section 263(1).
Rule 189
Method of valuation for the purposes of computing fair market value of assets and liabilities under section 352(2) for accreted income.
(1) For the purpose of section 352(2), the aggregate fair market value of the total assets of the specified person, shall be the aggregate of the fair market value of all the assets in the balance sheet as reduced by—
(a) tax paid; and
(b) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset.
(2) For the purpose of sub-rule (1), the fair market value of the asset shall be determined in the following manner, namely: —
(I) Valuation of shares and securities, —
(a) the fair market value of quoted share and securities shall be the following: —
(i) the average of the lowest and highest price of such shares and securities quoted on a recognised stock exchange as on the specified date; or
(ii) where on the specified date, there is no trading in such shares and securities on a recognised stock exchange, the average of the lowest and highest price of such shares and securities on a recognised stock exchange on a date immediately preceding the specified date when such shares and securities were traded on a recognised stock exchange,
(b) the fair market value of unquoted equity shares shall be the value, on the specified date as determined in accordance with the following formula, namely: —
Fair market value of unquoted equity shares = (A+B – L) × (PV)
(PE)
where,
A = book value of all the assets in the balance sheet (other than bullion, jewellery, precious stone, artistic work, shares, securities and immovable property) as reduced by—
(i) tax paid; and
(ii) any amount shown in the balance sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset;
B = fair market value of bullion, jewellery, precious stone, artistic work, shares, securities and immovable property as determined in the manner provided in this rule;
L = book value of liabilities shown in the balance sheet, but not including the following amounts, namely: —
(i) representing contingent liabilities other than arrears of dividends payable in respect of the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity shares;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation;
(iv) any amount representing provision for taxation, other than tax paid, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto;
(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi) any amount cumulative preference shares;
PE = total amount of paid-up equity share capital as shown in the balance sheet;
PV = the paid-up value of such equity share,
(c) the fair market value of shares and securities other than equity shares shall be estimated to be price it would fetch if sold in the open market on the specified date on the basis of the valuation report from a merchant banker or an accountant in respect of such valuation.
(II) The fair market value of an immovable property shall be higher of the following, namely: —
(a) price that the property shall ordinarily fetch if sold in the open market on the specified date on the basis of the valuation report from a registered valuer; and
(b) stamp duty value as on the specified date.
(III) The fair market value of a business undertaking, held by a specified person, shall be its net assets determined in accordance with the following formula: —
Fair market value = (A + B – L), which shall be determined in the manner provided in sub-rule 2(I)(b).
(IV) The fair market value of any asset, other than those referred to in clauses (a), (b) and (c), shall be the price that the asset shall ordinarily fetch if sold in the open market on the specified date on the basis of valuation report from a, –
(a) registered valuer; or
(b) valuer who is a member of any one of the following professional valuer bodies, where no valuer is registered for valuation of the said assets:
(A) Institution of Valuers,
(B) Institution of Surveyors (Valuation Branch),
(C) Institution of Government Approved Valuers,
(D) Practicing Valuers Association of India,
(E) the Indian Institution of Valuers,
(F) Centre for Valuation Studies, Research and Training,
(G) Royal Institute of Chartered Surveyors: India Chapter,
(H) American Society of Appraisers, USA;
(I) Appraisal Institute, USA, or
(J) a valuer who is appointed by any public sector bank or public sector undertakings for valuation purposes.”
(3) For the purpose of section 352(2), the total liability of the specified person shall be the book value of liabilities in the balance sheet on the specified date but not including the following amounts, namely: —
(a) capital fund or accumulated funds or corpus, by whatever name called;
(b) reserves or surpluses or excess of income over expenditure, by whatever name called;
(c) any amount representing contingent liability;
(d) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(e) any amount representing provision for taxation, other than tax paid, to the extent of the excess over the income-tax payable with reference to the income in accordance with the law applicable thereto.
(4) For the purposes of this rule, —
(a) “accountant” shall have the same meaning as assigned to it in section 515(3)(b);
(b) “balance sheet” in relation to any specified person, shall mean the balance sheet of such specified person (including the notes annexed thereto and forming part of the accounts) as drawn up on the specified date which has been audited by an accountant;
(c) “merchant banker” shall mean a category I merchant banker registered with Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992);
(d) “quoted share or security” in relation to share or security means a share or security quoted on any recognised stock exchange with regularity from time to time, where the quotations of such shares or securities are based on current transaction made in the ordinary course of business;
(e) “recognised stock exchange” shall have the same meaning as assigned to it in section 2(f) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(f) “registered valuer” means a person registered as a valuer under section under section 514.;
(g) “securities” shall have the same meaning as assigned to it in section 2(h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(h) “specified date” means the date specified, in column C of the Table in section 352(5);
(i) “specified person” shall have the same meaning as assigned to it in section 355(l);
(j) “stamp duty value” means 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 an immovable property;
(k) “tax paid” means any amount of income-tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of income-tax claimed as refund under the Act;
(l) “unquoted share and security” in relation to share or security means share or security which is not a quoted share or security.
