What the Income-tax Act, 2025 means for valuation, transactions and business decisions

A valuation question rarely starts with a number. It starts with a purpose.

The Income-tax Act, 2025 is now the framework for the new tax-year regime from 1 April 2026. Within that framework, fair market value (FMV) has a defined role in particular tax situations. For founders and transaction stakeholders, however, an important distinction remains: a value determined for a specific tax purpose should not automatically be treated as the universal answer to every business valuation question.

That distinction becomes particularly important when a company is being sold, acquired, restructured, reported on, or evaluated for another major corporate decision.

The first question is not “What is the business worth?”

A better starting point is: “Value for what purpose?” The purpose of the valuation influences what the exercise is intended to answer and helps frame the relevant requirements, information, assumptions and methodology.

Tax: What does the relevant provision require? A defined statutory tax question.

Transaction: What is the business worth in the deal? Commercial decision-making, negotiation and transaction analysis.

Financial reporting: What must be measured under the applicable framework? A reporting or measurement objective.

What changed from 1 April 2026?

The Income-tax Department states that the Income-tax Act, 1961 was repealed from 1 April 2026, with transitional provisions preserving the earlier framework for tax years beginning before that date and for related proceedings. The Department also notes that the new “Tax Year” framework applies from 1 April 2026, while compliance for earlier years continues under the earlier Act.

The Income-tax Rules, 2026 were notified on 20 March 2026 and came into force on 1 April 2026. The Rules provide detailed provisions under the new Act, including valuation-related rules.

How the new Act defines fair market value

Section 2(44) of the Income-tax Act, 2025 defines “fair market value”, in relation to a capital asset, as the price that the asset would ordinarily fetch on sale in the open market on the relevant date. Where that price is not ascertainable, the Act refers to a price determined in the prescribed manner.

This matters because FMV is a defined statutory concept. Its meaning and use need to be read in the context of the provision in which it appears, rather than treated as a universal synonym for the value of a business.

Section 80: where FMV enters the capital-gains computation

Section 80 provides that where the consideration received or accruing from the transfer of a capital asset is not ascertainable or cannot be determined, the fair market value on the date of transfer is deemed to be the full value of consideration for the purpose of computing income under the head “Capital gains”.

The practical point for business owners is not that every transaction is governed by one universal FMV figure. The relevant provision, transaction facts, date, structure and applicable valuation requirements still need to be identified.

Why a tax-specific value should not automatically become a transaction value

Consider a founder preparing to sell a private company. A valuation has been prepared for a tax-related purpose, and the founder assumes that figure is therefore the “true value” of the company for the sale.

That conclusion may be too broad. A transaction valuation can involve a different commercial question. Depending on the transaction, stakeholders may need to consider market evidence, the deal context, the economics of the business, the quality and sustainability of earnings, growth expectations, capital requirements, concentration risks and other factors relevant to the decision.

The point is not that one valuation is necessarily right and another is wrong. The point is that a valuation conclusion should be appropriate for the purpose for which it is being used.

A practical framework for founders

1. Decision: What decision will the valuation support?

2. Requirements: Which tax, reporting or transaction requirements apply?

3. Date and evidence: What valuation date and information are relevant?

4. Method: Which methodology and assumptions fit that purpose?

The better question comes before the number

“What is my company worth?”

“Value for what purpose?”

For founders, shareholders and transaction stakeholders, that distinction can materially improve the way a valuation exercise is scoped. The right conclusion starts with the right question, not simply with the selection of a valuation method.

Before you request a valuation, start with the decision.

Pensar Valuation works across Business Valuation, Transaction Advisory, M&A, Financial Reporting and Corporate Finance. The right starting point is not a template or a valuation method. It is understanding what decision the valuation needs to support.

Selling a business? Acquiring one? Addressing a reporting or tax requirement? Tell us the decision and the context. We can help frame the valuation scope, relevant purpose, and information needed before the analysis begins.

START WITH THE DECISION Not sure what valuation you need? Tell us what you’re trying to decide. We’ll help you frame the right valuation scope before the model begins.

DISCUSS YOUR VALUATION REQUIREMENT →

A focused first conversation can help establish the purpose, scope, relevant valuation considerations, and information required for the work.

Important note

This article is for general informational purposes only and does not constitute tax, legal, accounting or investment advice. Specific matters should be evaluated based on their facts and the applicable law and professional requirements.

Official Sources

The following official resources provide the statutory basis for understanding fair market value, tax-related valuation and the distinction between tax valuation and transaction-oriented business valuation.

1. Income-tax Act, 2025 — Official Text

   Read the Income-tax Act, 2025, on the Income Tax Department website. Refer to the relevant provisions when assessing the tax treatment of a transaction or valuation.

   
   

2. Section 2(44) — Definition of Fair Market Value

   Refer to Section 2 of the Income-tax Act, 2025 for the statutory definition of fair market value. The applicable definition and its context should be checked against the specific transaction and provision being considered.

   
   

3. Section 80 — Fair Market Value Deemed to Be Full Value of Consideration in Certain Cases

   Read Section 80 of the Income-tax Act, 2025. This provision addresses specified circumstances in which the consideration for the transfer of a capital asset is unascertainable or cannot be determined. It should not be interpreted as a universal rule for every business valuation.

   
   

4. Income-tax Rules and Prescribed Valuation Methods

   Consult the official Income Tax Department legislation portal for the applicable rules and prescribed valuation methods. Any specific rule, formula or valuation method cited in this article should be verified against the relevant official provision.

   
   

5. Commencement of the Income-tax Act, 2025Refer to the official Income Tax Department announcement on the Act coming into force from 1 April 2026 for commencement-related context.

   
   

Important distinction: A valuation prepared for a specific tax provision may follow statutory definitions, assumptions or prescribed methods. A valuation for a business sale, investment, shareholder transaction or financial reporting purpose may require a different scope and approach. The applicable law, valuation purpose and relevant professional requirements should therefore be considered before selecting a methodology.

These sources are provided for informational purposes and should be read alongside the applicable legislation, rules and professional guidance. This article is not a substitute for legal, tax or professional valuation advice.