Do not exclude every disposal gain or retain every book gain
Companies Act section 198(3)(d) excludes the described capital-property and fixed-asset sale profits, subject to its business exception and a proviso requiring limited credit where sale proceeds exceed written-down value. The credit cannot exceed original cost minus written-down value. This guide, checked on 28 October 2026, develops an asset-wise disposal bridge for section 197 remuneration computations, rather than a general explanation of remuneration percentage ceilings. Companies Act: section 198(3)–(5).
Classify the business and asset first
The clause contains an exception where the company's business consists wholly or partly of buying and selling the relevant property or assets. Do not apply the fixed-asset capital-sale model mechanically to inventory sales in that business. Establish actual original cost, applicable written-down value, sale consideration and accounting treatment. The assumed statutory working values in the examples are not automatically the income-tax block values or revalued book balances. Companies Act: section 198(3)–(5).
Calculate the limited credit separately
For a qualifying fixed-asset sale above written-down value, compare the excess with original cost less written-down value. On ordinary positive-cost facts the smaller amount supplies the proviso's credit. If book profit already includes a larger disposal gain, remove the excess rather than either deleting all profit or adding the permitted credit on top of the entire booked gain. Work asset by asset before consolidating results. Companies Act: section 198(3)–(5).
Losses need their own statutory reading
Section 198(5)(c) excludes capital losses but expressly carves out the excess of an asset's written-down value over sale proceeds or scrap value where it is sold, discarded, demolished or destroyed. Do not use a blanket capital-loss add-back which ignores that wording. Confirm the actual event, values and treatment, and avoid deducting an already recognised permitted loss twice. Companies Act: section 198(3)–(5).
Keep unrealised increases out of the disposal schedule
Section 198(3)(f) excludes unrealised or notional gains and asset revaluation. A revaluation entry is not proof of a realised sale or a new original cost for the proviso. Fair-value changes recognised in equity reserves also have their stated treatment under subsection (3)(e) and subsection (5)(d). Identify where an amount entered the starting profit before adjusting it; a reserve movement not included in that profit should not be deducted from it again. Companies Act: section 198(3)–(5).
This is one component of the remuneration profit calculation
Section 198 contains other credits and deductions. Section 197(1) further specifies that directors' remuneration is not deducted in its net-profit computation despite the ordinary wording in section 198(4)(b). Accordingly, the disposal bridge is not the whole computation, proof of a payable remuneration amount or a CSR spending calculation. Preserve statutory depreciation and other adjustments separately and apply the correct reporting purpose. Companies Act: section 198(3)–(5).
Applicable primary references
Companies Act: section 198(3)–(5) Companies Act: section 197(1) computation qualification
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Sale below original cost but above WDV
Assume original cost ₹1,00,00,000, applicable WDV ₹60,00,000 and proceeds ₹90,00,000. Sale excess over WDV is ₹30,00,000 and the cost-minus-WDV cap ₹40,00,000. The proviso credit is ₹30,00,000, assuming the ordinary fixed-asset case and matching book bases.
Illustrative example 2: Book gain exceeds the permitted credit
With original cost ₹1,00,00,000 and WDV ₹60,00,000, proceeds ₹1,30,00,000 give a ₹70,00,000 gain on the assumed matching basis. Permitted credit is ₹40,00,000, so remove ₹30,00,000 from that booked gain in this component of the section 198 working.
Illustrative example 3: A permitted WDV shortfall
Assume the relevant asset's WDV is ₹60,00,000 and sale proceeds ₹50,00,000. The ₹10,00,000 excess of WDV over proceeds falls within the stated subsection (5)(c) carve-out on these facts. If books already deducted that same ₹10,00,000 and bases match, do not deduct it again.
Illustrative example 4: Destroyed asset with scrap
Assume a destroyed asset has applicable WDV ₹50,00,000 and scrap value ₹5,00,000, with no other recovery or complication in the model. The WDV-minus-scrap shortfall is ₹45,00,000. Do not treat the entire amount as a prohibited capital loss without considering the express carve-out.
Illustrative example 5: Revaluation is not a sale
Assume starting book profit ₹80,00,000 includes an unrealised asset-revaluation gain ₹20,00,000. Excluding that gain gives ₹60,00,000 before other section 198 adjustments. There is no sale-proceeds recapture calculation merely because the asset was revalued.
Illustrative example 6: Do not pool incompatible asset results
Asset A has cost ₹1,00,00,000, WDV ₹60,00,000 and proceeds ₹1,30,00,000: credit is ₹40,00,000 rather than matching-basis book gain ₹70,00,000. Asset B has cost ₹1,00,00,000, WDV ₹20,00,000 and proceeds ₹10,00,000: assumed permitted shortfall is ₹10,00,000. Net statutory disposal component is ₹30,00,000 versus net book component ₹60,00,000, requiring a ₹30,00,000 reduction.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Fix the computation purpose | Section 197 remuneration working |
| 2 | Identify each disposal event | Sale, discard, demolition or destruction evidence |
| 3 | Check the business exception | Actual property or asset trading activity |
| 4 | Establish original cost | Asset register and acquisition documents |
| 5 | Verify applicable WDV | Supported statutory depreciation bridge |
| 6 | Determine proceeds and scrap | Contracts, receipts and other recoveries review |
| 7 | Calculate limited disposal credit | Sale excess and original-cost cap |
| 8 | Analyse permitted loss separately | Section 198(5)(c) carve-out |
| 9 | Bridge the starting profit | Already booked gains, losses and reserve entries |
| 10 | Complete the wider working | Other section 198 items and section 197 adjustment |
Sixteen practitioner FAQs
1. Is every fixed-asset sale profit excluded entirely?
No. Read the proviso requiring limited credit above WDV.
2. What limits that credit?
The difference between original cost and WDV in the proviso.
3. Does sale above original cost make the entire book gain eligible?
No. Apply the specified cap on the stated ordinary asset facts.
4. Can tax block WDV automatically be used?
No. Establish the appropriate values for this Companies Act working.
5. Does revaluation automatically rewrite original cost?
Do not assume that result; reconcile the actual statutory basis.
6. Does the clause contain a business exception?
Yes, for the described business of buying and selling such property or assets.
7. Is an inventory sale automatically a capital fixed-asset sale?
No. Establish classification and the actual business facts.
8. Are all capital-labelled losses disallowed?
Subsection (5)(c) contains an express WDV shortfall carve-out.
9. Can scrap value matter for a destroyed asset?
Yes, the wording expressly refers to sale proceeds or scrap value for the listed events.
10. Can an already deducted permitted loss be deducted twice?
No. Bridge it to the starting profit.
11. Is unrealised revaluation the same as sale proceeds?
No. Subsection (3)(f) separately excludes unrealised and notional gains and revaluation.
12. Should a reserve movement outside starting profit be subtracted again?
No. Trace whether the amount was included before making the adjustment.
13. Can assets be pooled before checking individual caps?
An asset-wise working preserves the statutory original-cost and WDV comparisons.
14. Is this disposal schedule the complete remuneration-profit computation?
No. Complete all other applicable adjustments.
15. Is directors' remuneration simply deductible because section 198(4)(b) names it?
For section 197, subsection (1)'s express non-deduction qualification must also be applied.
16. Does this working determine CSR spending?
No. CSR has its own purpose-specific framework and adjustments.
Conclusion
Reconcile fixed-asset disposal results for section 197 remuneration using section 198’s limited disposal credit, capital-loss exception and asset-wise evidence.