Revenue from operations vs other income under Schedule III: what goes where

The first two lines of the Statement of Profit and Loss decide more than they seem to. Whether an item sits in revenue from operations under Schedule III or in other income changes the top line, the 1% threshold for separate disclosure of income and expenses, and the sales-based ratios. In a Tally trial balance the split is often left to the ledger group — "Sales Accounts", "Direct Incomes", "Indirect Incomes" — which does not always match what Schedule 3 and ICAI's Guidance Note on Division I expect. This guide sets out the prescribed note formats, the line between other operating revenue and other income, the AS 9 recognition basics, a 20-item classification table and a worked example. It is part of our Schedule III guide; Ind AS companies follow Division II and Ind AS 115, which are not covered here.

Revenue from operations under Schedule III: the note format

The face of the Statement of Profit and Loss shows two income lines: I. Revenue from operations and II. Other income, with III as their total. Since G.S.R. 207(E) (effective 1 April 2021) that total is called "Total Income" — the earlier word was "Revenue". Note 2(A) of the General Instructions for the Statement of Profit and Loss then requires a company other than a finance company to disclose in the notes revenue from:

• (a) sale of products;
• (b) sale of services;
• (ba) grants or donations received — relevant only to section 8 companies, inserted by the 2021 amendment;
• (c) other operating revenues;
• less (d) excise duty.

The note in a typical small manufacturing company looks like this (figures illustrative):

Two further rules shape this note. Note 5(ii) asks manufacturing, trading and service companies for information under broad heads; service companies must show gross income from services under broad heads, the Guidance Note (para 10.7) suggests manufacturers show sales of finished goods under broad heads too, and treats about 10% of the total as a commonly acceptable threshold for a head. And for a finance company, Note 2(B) replaces the list: revenue from operations includes revenue from interest and from other financial services, each shown separately. The Guidance Note (paras 9.1.11–9.1.13) reads "finance company" as any company carrying on the business of a non-banking financial institution as defined in section 45-I of the RBI Act — NBFCs of every kind and housing finance companies — and allows dividend, rental and fee and commission income to be shown as separate lines.

GST and excise duty: what the top line excludes

Under AS 9, revenue is the gross inflow arising in the course of the company's ordinary activities, and in an agency relationship it is only the commission. The Guidance Note applies the same idea to indirect taxes. Its para 9.1.3 asks whether the company collects a tax as principal or merely as an intermediary; para 9.1.6 then states plainly that since GST was introduced on 1 July 2017, GST collected is not an inflow on the company's own account, so revenue is presented net of GST. In Tally terms: the output CGST, SGST and IGST ledgers belong in duties and taxes on the balance sheet, never in sales.

Excise duty is different because it is a levy on manufacture rather than a tax collected on a sale. It now survives mainly on petroleum crude, petrol, diesel, natural gas and aviation turbine fuel, which are still outside GST, and on tobacco products, which bear excise duty in addition to GST. Where it applies, the Guidance Note (para 9.1.2) says it must be shown on the face of the Statement of Profit and Loss, because AS 9 as notified requires it (the Explanation to para 10) and accounting standards override Schedule III; a company may then show the sale of products, sale of services and other operating revenues on the face as well. For most small companies the line is simply nil — show it only if it applies.

A related point at the year end: sales returns and trade discounts reduce sale of products. A credit note for a rate difference or a quantity discount is a reduction of revenue, not an expense (AS 9 Appendix, item 9: trade discounts and volume rebates given are deducted in determining revenue).

Revenue from operations meaning: other operating revenue vs other income

Schedule III does not define "other operating revenue". The Guidance Note (para 9.1.8) describes it as revenue from the company's operating activities — its principal or ancillary revenue-generating activities — that is not from the sale of products or services. The answer depends on the facts of each case and on the purpose for which the asset generating the income is held. Its own examples set the pattern:

• Rent. A group with a real estate arm continuously engaged in leasing earns other operating revenue. A consumer products company that temporarily lets one spare floor of its own building earns other income.
• Scrap. Sale of manufacturing scrap arising from operations is other operating revenue, because it comes from the main operating activity (para 9.1.9).
• Sale of PPE. Selling fixed assets is not an operating activity, so profit on sale of property, plant and equipment is other income (para 9.1.9).
• Foreign exchange. Net exchange gain is other income, because it arises from rate movements, not from selling goods or services — unless the company's business is dealing in foreign exchange (para 9.1.10). Exchange differences on borrowings that are treated as a borrowing cost go to finance costs instead (Note 3(c)).

Export incentives such as duty drawback and RoDTEP are not dealt with in the Guidance Note. In practice many companies present them as other operating revenue, since they arise only because of export sales. AS 12 names duty drawbacks among government grants and says grants related to revenue are shown separately under other income or deducted from the related expense (para 15), so state the policy followed. Recognise them only when there is reasonable assurance that the conditions will be complied with and the amount will be received (AS 12 para 13), and apply the same treatment in both years.

Other income under Schedule III: the four heads

Note 4 of the General Instructions classifies other income as:

The Guidance Note (para 9.3) adds that a share of profit or loss from a partnership firm should be disclosed separately, recognised when the right to receive it is established and computed by reference to the company's own accounting year. Note 5(i) also asks for interest income, dividend income and net gain/loss on sale of investments as additional information, and Note 5(v)(b) for the aggregate, if material, of provisions withdrawn as no longer required — so a single "Miscellaneous income" line seldom meets the requirement.

AS 9 recognition basics for each type of income

Classification answers where an item goes; AS 9 (Revenue Recognition), as notified under the Companies (Accounting Standards) Rules, 2021, answers when it is recognised:

• Sale of goods (para 11): when property in the goods or all significant risks and rewards of ownership have passed to the buyer, the seller keeps no effective control, and there is no significant uncertainty about the consideration.
• Services (para 12): under the proportionate completion method or the completed service contract method, whichever relates revenue to the work done.
• Interest on a time proportion basis; royalties on an accrual basis under the agreement; dividends when the owner's right to receive payment is established (para 13).
• Collectability (para 10): if ultimate collection is not reasonably expected when the claim is raised, recognition is postponed, and para 14 requires the circumstances to be disclosed.

Year-end cut-off is where these rules bite in practice: goods despatched on 31 March but delivered in April, interest on fixed deposits accrued but not yet credited by the bank, and a dividend declared before the year end but received after it.

20 items: revenue from operations or other income?

For a non-finance company unless stated otherwise:

Where an item is a judgement call — a royalty, a recurring insurance claim, a grant — record the reasoning once in the permanent file and apply it consistently, reclassifying the previous year's figure if the presentation changes.

Worked example: from trial balance to the two notes

Example Engineering Pvt Ltd, a manufacturer, has these income ledgers for FY 2025-26 (illustrative). Tally groups them under Sales Accounts, Direct Incomes and Indirect Incomes:

Result: revenue from operations ₹10,28,90,000 (products ₹9,99,00,000; services ₹18,00,000; other operating revenues ₹11,90,000) and other income ₹12,85,000 (interest ₹3,50,000; dividend ₹60,000; gain on investments ₹1,25,000; other non-operating ₹7,50,000, with the ₹30,000 property tax netted off disclosed). Total income: ₹10,41,75,000.

Two checks follow. First, the Note 5(i)(c) threshold: 1% of revenue from operations is ₹10,28,900, which is higher than ₹1,00,000, so any single item of income or expenditure above ₹10,28,900 is disclosed separately. Second, if the ₹9,50,000 of scrap had sat in Indirect Incomes and been carried into other income, revenue from operations would be understated and the threshold and every sales-based ratio would move with it.

How the split feeds the Schedule III ratios

The Guidance Note's Annexure B computes the net profit ratio as profit after tax divided by net sales, and the net capital turnover ratio as net sales divided by average working capital, with net sales defined as total sales minus sales returns. Many companies use revenue from operations as the base instead; either way, state the numerator and denominator in the ratio note and use the same basis for both years. A reclassification between revenue and other income from one year to the next can push a ratio past the 25% variance mark on its own — and then needs an explanation. See Schedule III ratios and the 25% variance for the full set, and run the year-on-year review in analytical review under SA 520 once the notes are final. For where these notes sit in the full set, see notes to accounts under Schedule III, and for the presentation slips that recur in small-company files, Schedule III mistakes in small company accounts.

Frequently asked questions

Sources

• Companies Act, 2013 — Schedule III, Division I, Part II, General Instructions for Preparation of Statement of Profit and Loss, Notes 2, 3, 4 and 5 (India Code, amended text)
• Schedule III amendment — G.S.R. 207(E), 24 March 2021 (Gazette)
• ICAI — Guidance Note on Division I – Non Ind AS Schedule III to the Companies Act, 2013 (Revised January 2022), paras 9.1–9.3, 10.5–10.7 and Annexure B
• ICAI — Accounting Standard (AS) 9, Revenue Recognition, paras 4.1 and 10–14

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