Section 198 — Calculation of profits

(1) In computing the net profits of a company in any financial year for
the purpose of section 197,—
(a) credit shall be given for the sums specified in sub-section (2), and credit shall not be given for
those specified in sub-section (3); and
(b) the sums specified in sub -section (4) shall be deducted, and those specified in sub -section (5)
shall not be deducted.

1. Subs. by Act 1 of 2018, s. 67, for “permitted by the Central Government” (w.e.f. 12-9-2018).
2. The proviso ins. by s. 67, ibid., (w.e.f. 12-9-2018).
3. The words “and if such conditions are not being complied, the approval of the Central Government had been obtained” by
s. 67, ibid., (w.e.f. 12-9-2018).
4. Subs. by Act 22 of 2019, s. 29, for sub-section (15) (w.e.f. 2-11-2018).
5. Ins. by Act 1 of 2018, s. 67 (w.e.f. 12-9-2018).

(2) In making the computation aforesaid, credit shall be given for the bounties and subsidies received
from any Government, or any public authority constituted or authorised in this behalf, by any Government,
unless and except in so far as the Central Government otherwise directs.
(3) In making the computation aforesaid, credit shall not be given for the following sums, namely:—
(a) profits, by way of premium on shares or debentures of the company, which are issued or sold
by the company 1[unless the company is an investment company as referred to in clause ( a) of the
Explanation to section 186];
(b) profits on sales by the company of forfeited shares;
(c) profits of a capital nature including profits from the sale of the undertaking or any of the
undertakings of the company or of any part thereof;
(d) profits from the sale of any immovable property or fixed assets of a capital nature comprised in
the undertaking or any of the undertakings of the company, unless the business of the company consists,
whether wholly or partly, of buying and selling any such property or assets:
Provided that where the amount for which any fixed asset is sold ex ceeds the written-down value
thereof, credit shall be given for so much of the excess as is not higher than the difference between the
original cost of that fixed asset and its written-down value;
(e) any change in carrying amount of an asset or of a liability recognised inequity reserves including
surplus in profit and loss account on measurement of the asset or the liability at fair value.
2[(f) any amount representing unrealised gains, notional gains or revaluation of assets.]
(4) In making the computation aforesaid, the following sums shall be deducted, namely:—
(a) all the usual working charges;
(b) directors’ remuneration;
(c) bonus or commission paid or payable to any member of the company’s staff, or to any engineer,
technician or person employed or engaged by the company, whether on a whole-time or on a part-time
basis;
(d) any tax notified by the Central Government as being in the nature of a tax on excess or abnormal
profits;
(e) any tax on business profits imposed for special reasons or in special circumstances and notified
by the Central Government in this behalf;
(f) interest on debentures issued by the company;
(g) interest on mortgages executed by the company and on loans and advances secured by a charge
on its fixed or floating assets;
(h) interest on unsecured loans and advances;
(i) expenses on repairs, whether to immovable or to movable property, provided the repairs are not
of a capital nature;
(j) outgoings inclusive of contributions made under section 181;
(k) depreciation to the extent specified in section 123;
(l) the excess of expenditure over income, which had arisen in computing the net profits in
accordance with this section in any year 3***, in so far as such excess has not been deducted in any
subsequent year preceding the year in respect of which the net profits have to be ascertained;
(m) any compensation or damages to be paid in virtue of any legal liability including a liability
arising from a breach of contract;
(n) any sum paid by way of insurance against the risk of meeting any liability such as is referred to
in clause (m);
(o) debts considered bad and written off or adjusted during the year of account.
(5) In making the computation aforesaid, the following sums shall not be deducted, namely:—
(a) income-tax and super-tax payable by the company under the Income-tax Act, 1961 (43
of 1961), or any other tax on the income of the company not falling under clauses ( d) and (e) of sub-
section (4);

1. Ins. by Act 1 of 2018, s. 68 (w.e.f. 12-9-2018).
2. Clause (f) ins. by s. 68, ibid. (w.e.f. 12-9-2018).
3. The words “which begins at or after the commencement of this Act” omitted by s. 68, ibid. (w.e.f. 12-9-2018).

(b) any compensation, damages or payments made voluntarily, that is to sa y, otherwise than in
virtue of a liability such as is referred to in clause (m) of sub-section (4);
(c) loss of a capital nature including loss on sale of the undertaking or any of the undertakings of
the company or of any part thereof not including any ex cess of the written -down value of any asset
which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value;
(d) any change in carrying amount of an asset or of a liability recognised inequity reserves including