Rule 11 of the Draft Income-tax Rules, 2026 prescribes the method for computing the fair market value (FMV) of tangible and intangible assets held directly or indirectly by a foreign company or entity for the purposes of section 9(2), as on the specified date. For listed shares of an Indian company, FMV is generally based on the observable stock exchange price; however, where such shareholding confers management or control rights, FMV is determined using a formula based on market capitalisation and book value of liabilities divided by total outstanding shares. If shares are listed on multiple exchanges, the exchange with the highest trading volume is considered. For unlisted shares, FMV must be determined by a merchant banker or accountant using internationally accepted valuation methodologies and adjusted for liabilities. Interests in partnership firms or associations are valued through professional valuation, with allocation based on capital contribution and profit-sharing terms. Other assets are valued at open market price as determined professionally, including liabilities. The rule also prescribes valuation methods for all assets of a foreign company depending on listing or transfer status, allows adjustments where interim financial statements are used, requires consideration of global assets and operations for Indian asset valuation, and mandates telegraphic transfer buying rate for currency conversion.
Extract of Rule No. 11 of Draft Income-tax Rules, 2026
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(2) 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, namely: —
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;
C = the total number of outstanding shares;
(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, namely: —
(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;
(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 Table below are fulfilled shall be determined as per column C: —
TABLE
| Sl. No. | Conditions | Fair Market Value |
| A | B | C |
| (a) | 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 capitalization of the foreign company or entity computed on the basis of the full value of consideration for transfer of the share or interest; 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; |
| (b) | 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 capitalization 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: B = book value of the liabilities of the company or the entity as on the specified date; |
| (c) | 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 capitalization 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. B = book value of the liabilities of the company or the entity; |
| (d) | 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; 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(2)(i)(iii), 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 11 and 234 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 the 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.
