Rule 56: Definitions and valuation dates for fair market value
Rule 56 supplies definitions used in the fair-market-value rules, especially Rule 57. It also identifies different valuation dates for receipts, specified share transfers and conversion of inventory into a capital asset.
Official notified Income-tax Rules, 2026Need advice on Rule 56?
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Bare law
Rule 56 - Meaning of expressions used in determination of fair market value
For the purposes of this rule and rule 57, —
(a) ―balance sheet", in relation to any company, means, — (i) in relation to an Indian company, the balance sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company appointed under the laws relating to companies in force; and (ii) in relation to a company, not being an Indian company, the balance sheet of the company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited by the auditor of the company, if any, appointed under the laws in force of the country in which the company is registered or incorporated;
(b) "merchant banker" means 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);
(c) "quoted shares or securities" in relation to shares or securities 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;
(d) "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);
(e) "registered dealer" means a dealer who is registered under Central Sales Tax Act, 1956 (74 of 1956) or general sales tax law for the time being in force in any State including value added tax laws;
(f) "registered valuer" shall have the same meaning as assigned to it in section 513;
(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) "unquoted shares and securities", in relation to shares or securities, means shares and securities which are not quoted shares or securities; and
(i) ―valuation date" means the date provided in the Table below:
Sl. No Section Valuation date 1. Section 92 Date on which property or consideration, as the case may be, referred to in section 92 is received by the assessee. 2. Section 79 Date on which the capital asset, being share of a company other than a quoted share, referred to in section 79, is transferred. 3. Section 26(2)(j) Date on which the inventory is converted, or treated, as a capital asset.
Rule breakdown
Start with the relevant valuation date
For section 92, the table uses the date the relevant property or consideration is received. For section 79, it uses the transfer date of the specified non-quoted company share. For section 26(2)(j), it uses the date inventory is converted or treated as a capital asset.
Identify the legal event before selecting prices, accounts or reports. These dates are not interchangeable with a financial year-end simply because that is when accounts are prepared.
Use the defined balance sheet and notes
The balance-sheet definition includes the annexed notes and refers to a balance sheet drawn up on the valuation date. It distinguishes the audit wording for an Indian company from the wording for a company incorporated elsewhere.
Check the required accounts and audit status for the company category. A standalone management summary without the relevant notes may not establish the defined balance sheet.
Distinguish quoted from unquoted shares and securities
Quoted shares or securities require regular quotations on a recognised exchange based on current transactions in the ordinary course of business. Unquoted shares and securities are those outside that definition.
A historical listing label alone should not substitute for checking the actual defined conditions used by the valuation rule.
Match the required professional or dealer category
A merchant banker means a SEBI-registered Category I merchant banker. Registered valuer is defined by reference to section 513; registered dealer has the particular tax-registration definition in clause (e).
Match the person supplying an invoice or valuation report to the category required by the applicable Rule 57 method. Do not assume that every adviser, broker or vendor satisfies each definition.
Apply the linked method after the definitions
Rule 56 supplies definitions; Rule 57 supplies the relevant valuation method for each listed property category. Other provisions may expressly modify the valuation date for their own purpose, such as the slump-sale rule.
Keep a working paper recording the governing provision, valuation date, asset classification, defined professional and supporting evidence before applying the formula or price test.
Key takeaways
Event-based valuation dates
Receipt, transfer and inventory conversion use their specified dates.
Definitions are operative
Balance-sheet notes, quotation conditions and professional status matter.
Method comes next
Apply the linked Rule 57 method after classification.
Practical checklist
- Identify the relevant statutory event and date.
- Check the complete balance sheet and notes.
- Verify the professional or dealer category used by the method.
Avoid
- Do not substitute a convenient year-end date without legal support.
- Do not equate every financial adviser with a Category I merchant banker.
FAQs
Is the valuation date always 31 March?
No. Rule 56 identifies dates by the relevant receipt, transfer or inventory-conversion event.
Are all listed shares automatically quoted for this definition?
The definition requires regular quotations based on current ordinary-course transactions; check those conditions.
Does Rule 56 itself give the FMV formula for every asset?
No. It provides definitions and valuation dates, while Rule 57 provides the listed property valuation methods.
Glossary
- Merchant banker
- A Category I merchant banker registered with SEBI, as defined in Rule 56(b).
- Unquoted shares and securities
- Shares and securities that are not quoted shares or securities under this rule.
- Valuation date
- The relevant date specified in the three-row table, subject to any express provision-specific modification.