Rule 11UA no longer exists. From 1 April 2026 the fair market value of unquoted equity shares comes from a single prescribed formula in Rule 57 of the Income-tax Rules, 2026, and discounted cash flow is not part of it.
Last verified: 5 September 2026 · Applies to: Tax Year 2026-27 (transactions on or after 1 April 2026)
Contents
- The rule you have been citing is repealed
- The Rule 57 formula, variable by variable
- Illustrative example: Rule 57 on a small company balance sheet
- Why DCF is not on the menu any more
- CCPS, preference shares and everything that is not an equity share
- Which charging provisions Rule 57 now serves
- The asymmetry that catches ESOP work
- What to change in your documents this week
- Frequently asked questions
- How BVACA can help
The rule you have been citing is repealed
The Income-tax Act, 2025 (Act 30 of 2025) came into force on 1 April 2026 and repealed the Income-tax Act, 1961. The Income-tax Rules, 2026 (Notification 22/2026, G.S.R. 198(E), 20 March 2026) replaced the 1962 Rules on the same date. Rule 11UA, cited for a decade by every Indian transaction lawyer, CFO and valuer fixing the fair market value of unquoted shares, went with them. Its replacement is Rule 57 of the Income-tax Rules, 2026.
Two things changed at once:
- The citation changed. Any engagement letter, diligence checklist, board resolution, valuation report or side letter citing "Rule 11UA" for a transaction on or after 1 April 2026 is citing a repealed rule. An assessing officer reading it is being told the valuer applied law that no longer exists.
- The permitted method set narrowed. Under Rule 57 the fair market value of an unquoted equity share comes from one prescribed formula. The optional method menu that grew up around Rule 11UA for non-resident subscriptions is gone.
CBDT has said the rewrite was carried out "without altering the underlying tax policy", and for most of the Act that holds. Valuation is the place where the renumbering also brought a substantive narrowing, so this needs reading rather than a search-and-replace of "11UA" with "57". For the commercial logic of the three valuation families, our primer on how DCF, comparables and net asset value actually work covers that ground; this article is about which of them the Income-tax Rules will now accept.
The Rule 57 formula, variable by variable
For unquoted equity shares, Rule 57 prescribes:
FMV = (A + B + C + D − L) × PV ÷ PE
In plain terms: rebuild the balance sheet at value rather than book, subtract what the company owes, divide across the paid-up equity.
| Variable | What it is | What it means in practice |
|---|---|---|
| A | Adjusted book value of assets | The audited balance sheet, less the classes separately valued as B, C and D, with the adjustments the rule prescribes. Ordinary assets sit here at adjusted book value, not at market. |
| B | Market value of jewellery and artistic work | Determined by a registered valuer. Rare in an operating company, routine in a family holding company. |
| C | Fair market value of shares and securities held | Investments come in at their own fair market value, not at cost. In a holding company this is usually the largest number, and each unquoted investee needs a valuation of its own. |
| D | Stamp duty value of immovable property | Land and buildings enter at stamp duty value, not written down value. For a company that bought its premises decades ago, this substitution alone can multiply the answer. |
| L | Book value of liabilities | At book value, with six prescribed exclusions. The exclusions are why paid-up capital, reserves and certain provisions do not reduce the value. |
| PV | Paid-up value of the shares being valued | Face value of the block in question. |
| PE | Total paid-up equity share capital | The whole equity base, at face value. |
Two structural points a first-time reader usually misses.
It is a net-asset formula in a statutory uniform. Its job is to give an officer a figure that is hard to argue with, not to price a transaction.
Only three asset classes get revalued. Receivables, inventory, plant, intangibles, brand, order book and goodwill all stay at adjusted book value inside A. A capital-light company with a large pipeline and almost no balance sheet produces a very low Rule 57 figure; a cash-rich or property-heavy one produces a high figure. The formula does exactly what it says.
Illustrative example: Rule 57 on a small company balance sheet
Illustrative example. A private limited company, March 2026 balance sheet. Figures are invented and are not a client matter.
| Item | Amount |
|---|---|
| Adjusted book value of assets, excluding those separately valued (A) | ₹3,10,00,000 |
| Market value of jewellery and artistic work (B) | Nil |
| Fair market value of shares and securities held, being a stake in an unquoted subsidiary carried at ₹15,00,000 (C) | ₹40,00,000 |
| Stamp duty value of the office floor, carried in the books at ₹95,00,000 (D) | ₹1,80,00,000 |
| Less: book value of liabilities after the prescribed exclusions (L) | (₹1,30,00,000) |
| Net (A + B + C + D − L) | ₹4,00,00,000 |
Paid-up equity capital (PE) is ₹10,00,000, being 1,00,000 shares of ₹10 each. For a single share, PV is ₹10.
FMV per share = ₹4,00,00,000 × 10 ÷ 10,00,000 = ₹400 per share.
Note what the formula ignored. The company closed a round at ₹1,200 per share eight months earlier, on a merchant banker's discounted cash flow model. Under Rule 57 that ₹1,200 is not the fair market value for income-tax purposes. ₹400 is. Both numbers answer different questions and both can be correct at once.
The consequence: if a block is transferred at ₹250, the ₹400 figure is the benchmark under section 79 read with section 72 (successor to old section 50CA) in the transferor's hands and under section 92(2)(m) (successor to old section 56(2)(x)) in the recipient's hands. Transfer the same block at ₹600 and Rule 57 raises no issue, because both provisions test transfers below fair market value.
Why DCF is not on the menu any more
This is the part that surprises people, so it is worth setting out the reasoning rather than just the conclusion.
Discounted cash flow is not among the permitted methods for unquoted equity shares under Rule 57. Neither are the five alternative methods that Notification 81/2023 had added to Rule 11UA: Comparable Company Multiple, Probability Weighted Expected Return, Option Pricing, Milestone Analysis and Replacement Cost.
The reason is structural. That five-method menu was introduced in 2023 for one purpose: to give non-resident investors a workable basis for the angel-tax provision, section 56(2)(viib) of the 1961 Act, when the charge was extended to them. Angel tax is abolished. Section 56(2)(viib) was omitted by the Finance (No.2) Act, 2024 with effect from AY 2025-26, and the Income-tax Act, 2025 does not re-enact it in any form. Once the charging section went, the menu built to serve it lost its statutory anchor. What survives in Rule 57 is the computation that always did the work for the other charging provisions.
Two things did not die with angel tax. Section 102 (old section 68, unexplained cash credits) expressly reaches "share application money, share capital, share premium", so an unexplained subscription is still assessable, on a different footing. And section 92(2)(m) can still tax an investor who receives shares below fair market value: angel tax charged the company on excess premium, section 92(2)(m) charges the recipient on the shortfall. Legacy assessments for pre-abolition years also remain enforceable, so an open AY 2024-25 assessment is still argued on Rule 11UA and section 56(2)(viib) as they then stood.
CCPS, preference shares and everything that is not an equity share
The Rule 57 formula applies to unquoted equity shares. Unquoted shares of any other class fall outside it.
For compulsorily convertible preference shares, other preference shares and comparable unquoted instruments, the fair market value is the price they would fetch in the open market, certified by a merchant banker or an accountant.
That is a different exercise, and in one respect a friendlier one. An open-market standard is a valuation opinion rather than a formula, so the valuer can and must reason about conversion terms, liquidation preference, dividend entitlement, anti-dilution protection and the timing of conversion. A CCPS with a 1x non-participating preference is not the equity share it may one day become, and the certificate should show it was analysed as its own instrument.
The practical trap: priced rounds are usually structured as CCPS while founder and ESOP shares are ordinary equity, so one transaction can need the Rule 57 formula for one class and an open-market certificate for another, on the same date, in the same company.
Which charging provisions Rule 57 now serves
Rule 57 is the valuation machinery for three charging provisions.
| Provision (2025 Act) | Old provision (1961 Act) | What it charges |
|---|---|---|
| s.92(2)(m) | s.56(2)(x) | Receipt of property, including unquoted shares, for less than fair market value. The charge falls on the recipient. |
| s.79 read with s.72 | s.50CA | Transfer of unquoted shares below fair market value. The FMV is substituted as full value of consideration for capital gains in the transferor's hands. |
| s.26(2)(j) | Conversion provisions | Stock-in-trade converted into a capital asset. |
Two of these bite on the same transaction from opposite ends: the seller on a deemed consideration under section 79 read with section 72, the buyer on the shortfall under section 92(2)(m). Where a group reorganises and shares move between related parties at book value, that pincer is the most common assessment risk raised, and a contemporaneous Rule 57 working is the cheapest defence available.
The asymmetry that catches ESOP work
Never conflate these two rules. They live in the same Rules, they both value unquoted shares, and they say different things.
| Rule 57 | Rule 15 | |
|---|---|---|
| Values | Unquoted equity shares for income-tax charging provisions | Perquisite FMV of shares allotted under an ESOP |
| Old rule | Rule 11UA | Rule 3(9)(ii) |
| Method | Prescribed formula only | Merchant banker's valuation, DCF permitted |
| Who signs | Formula-driven; merchant banker or accountant for non-equity shares | SEBI Category I Merchant Banker, mandatory |
| Currency | As at the valuation date | Certificate must be no more than 180 days old at the exercise date |
A company can therefore hold, correctly, a merchant banker's DCF-based certificate at ₹1,200 per share for an ESOP perquisite under Rule 15 and a Rule 57 working at ₹400 for a transfer of founders' shares in the same week. Different rules, different charges, different answers. An officer shown both, with the basis of each stated on its face, is far less likely to read the gap as evidence of anything. See ESOP perquisite valuation under Rule 15.
What to change in your documents this week
- Replace "11UA" in every template, from engagement letters and report formats to share purchase agreements, board resolutions, diligence lists and ESOP policies. Write "Rule 57 of the Income-tax Rules, 2026 (formerly Rule 11UA)" so the legacy term still reads sensibly.
- Re-point "56(2)(viib)" and "angel tax" in warranties and indemnities, usually at sections 102 and 92(2)(m). "50CA" is now section 79 read with section 72; "56(2)(x)" is section 92(2)(m). The full 1961 to 2025 section mapping has the rest.
- Check the date on every certificate in the data room. A report dated before 1 April 2026 was right when issued but is not authority for a transaction happening now.
- Separate instructions by purpose. Commercial pricing, FEMA pricing, Companies Act section 247 and income-tax Rule 57 are four mandates, not one. See which statute needs which valuer's signature.
Frequently asked questions
Is Rule 11UA still valid in 2026?
No. Rule 11UA sat in the Income-tax Rules, 1962, replaced by the Income-tax Rules, 2026 (Notification 22/2026, G.S.R. 198(E)) from 1 April 2026. The equivalent is Rule 57. A report citing Rule 11UA for a current transaction cites a repealed rule, though it remains correct for pre-1-April-2026 periods and open legacy assessments.
Can I still use DCF for valuing unquoted shares?
Not for the fair market value of unquoted equity shares under Rule 57, which prescribes a single formula. DCF remains available and is routinely used for commercial pricing, for FEMA pricing under an internationally accepted pricing methodology, and for ESOP perquisite FMV under Rule 15. The distinction is the purpose of the valuation, not the merit of the method.
What is the Rule 57 formula for unquoted equity shares?
FMV = (A + B + C + D − L) × PV ÷ PE, where A is the adjusted book value of assets, B the market value of jewellery and artistic work, C the fair market value of shares and securities held, D the stamp duty value of immovable property, L the book value of liabilities with six prescribed exclusions, PV the paid-up value of the shares valued and PE the total paid-up equity share capital.
How are CCPS valued now?
Outside the Rule 57 formula. Unquoted shares other than equity shares, including compulsorily convertible and ordinary preference shares, are valued at the price they would fetch in the open market, certified by a merchant banker or an accountant. Conversion terms, liquidation preference and timing all properly affect that figure.
Does angel tax still apply to my funding round?
No. Section 56(2)(viib) was omitted by the Finance (No.2) Act, 2024 from AY 2025-26 and is not re-enacted under the Income-tax Act, 2025. Section 102 and section 92(2)(m) remain live, so a defensible valuation file is still worth keeping.
How BVACA can help
Bachhal Vijender & Associates holds IBBI Registered Valuer credentials within the practice and prepares valuations for income-tax, Companies Act, FEMA and transaction purposes from Panchkula. On Rule 57 work we build the formula from the audited balance sheet, obtain the stamp duty valuation for immovable property and value each unquoted investment separately for the C variable, so the working stands on its own when it is read during an assessment three years later. Where a transaction needs more than one basis we scope each report separately at the instruction stage. If your certificate predates 1 April 2026 and you are mid-transaction, that is worth a short conversation. See our valuation services and IBBI Registered Valuer work.
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Author box: CA Vijender Singh Bachhal, Managing Partner, Bachhal Vijender & Associates (FRN 028355N), Panchkula. About the firm
Disclaimer: This article is general information current as at 5 September 2026, not advice for a specific situation. Tax and corporate law in India changed materially on 1 April 2026; verify the position before acting. Illustrative examples are not client matters.
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