Schedule III to Companies Act, 2013 – A Guide to Financial Reporting in India

Schedule III to the Companies Act, 2013 – A Practitioner’s Comprehensive Guide
Updated as on 01 September 2025 | Prepared for UCO Bank and corporate finance practitioners

Schedule III to the Companies Act, 2013 prescribes the general instructions for the presentation of financial statements by companies in India. It is the statutory ‘grammar’ for how balance sheets, statements of profit and loss, cash flow statements, and notes to accounts are structured and disclosed. The Schedule operates through three Divisions—Division I (companies following Accounting Standards under Companies (Accounting Standards) Rules, 2006), Division II (companies following Ind AS), and Division III (NBFCs following Ind AS). It has been progressively strengthened—most notably by the Ministry of Corporate Affairs (MCA) Notification G.S.R. 207(E) dated 24 March 2021—adding granular disclosure on items such as aging of trade payables/receivables, capital work-in-progress (CWIP) and intangible assets under development, title deeds of immovable properties, loans/advances to promoters and related parties, transactions with struck-off companies, utilisation of borrowings, benami proceedings, undisclosed income, crypto/virtual asset holdings, and financial ratios. For preparers, Schedule III is not merely a layout; it embeds governance principles of transparency, comparability, and accountability so that stakeholders—lenders, investors, regulators—can trust the numbers.

1) The Architecture of Schedule III: Divisions and Applicability

• Division I: For companies that prepare financial statements under the Companies (Accounting Standards) Rules, 2006 (non‑Ind AS entities).
• Division II: For companies that prepare financial statements under the Companies (Indian Accounting Standards) Rules, 2015 (Ind AS entities, other than NBFCs).
• Division III: For Non‑Banking Financial Companies (NBFCs) that prepare financial statements under Ind AS (Companies (Indian Accounting Standards) Rules, 2015 as applicable to NBFCs).

Each Division contains general instructions and minimum line‑items to be presented on the face of the primary statements, together with extensive note disclosures. Where an Accounting Standard/Ind AS requires a different treatment or additional disclosure, that standard prevails; Schedule III provides the presentation framework.

2) Deep Dive into Key Balance Sheet Classifications under Schedule III

Schedule III requires assets and liabilities to be classified into current and non‑current based on a 12‑month operating cycle, with prescriptive notes for PPE, investment property, intangible assets, biological assets (Ind AS), right‑of‑use (ROU) assets under leases, CWIP, intangible assets under development, and financial assets/liabilities. Below we focus on tangible classes commonly queried in audits—land, buildings, plant&machinery, furniture & fixtures, office equipment, vehicles—and what is specifically included or excluded by practice and case law.

2.1 Property, Plant and Equipment (PPE): Definition and Reconciliations

PPE comprises tangible items held for use in production/supply of goods or services, for rental to others, or for administrative purposes, expected to be used during more than one period. Under Division I (AS‑10 (Revised)) and Division II (Ind AS 16), companies must present a movement (reconciliation) for each class: gross carrying amount, accumulated depreciation and impairment, additions, disposals, revaluation adjustments, assets retired from active use, and other changes. Schedule III (post‑2021) also requires disclosures for revaluations by registered valuers and separate aging for CWIP and intangible assets under development.

2.2 Land

• Includes: Freehold land; leasehold land (presented separately); land development costs directly attributable to bringing land to use (site clearing, filling, leveling; boundary wall/compound as a building component); costs of obtaining title (stamp duty, registration), and borrowing costs capitalised under AS 16/Ind AS 23 prior to intended use.
• Excludes: Costs relating to structures (treated as ‘building’); landscaping/roads (typically classified as ‘building’); and any portion held for sale in the ordinary course of business (inventory/stock‑in‑trade for real estate developers under Ind AS 2). Land itself is not depreciated; leasehold land is amortised over lease term unless classified as finance lease (old GAAP) or ROU asset under Ind AS 116.

2.3 Buildings (including Factory Buildings)

• Includes: Main superstructure, internal roads, culverts, drainage within factory premises, boundary walls/compound walls, permanent fencing, permanent platforms/ramps, and permanent water supply lines forming part of the building system. Jurisprudence (for depreciation classification under tax law, often used by auditors as analytical guidance) holds that internal roads and drains within factory premises constitute part of ‘building’ rather than ‘plant’.
• Excludes: Temporary structures (classified as temporary erections); plant and machinery; electrical items that are integral to plant; investment property (Ind AS 40) if building is held to earn rentals/capital appreciation rather than owner‑occupation.

2.4 Plant and Machinery

• Includes: Production plant, specific process lines, power generation sets, special electrical installations linked to plant; major spares and stand‑by equipment expected to be used over more than one period (capitalised under AS‑10/Ind AS 16);
• Excludes: Buildings/superstructure; office equipment; furniture; and items of small tools consumed quickly (expensed unless significant and meet recognition criteria).

2.5 Furniture and Fixtures

• Includes: Workstations, cabinets, storage systems, seating, conference tables, counters, modular partitions (if not an integral part of the building). Under Ind AS, componentisation is applied when parts have different useful lives.
• Excludes: Office equipment (computers, printers, copiers—separate class); leasehold improvements that are structural (often classified under ‘building’ or ‘leasehold improvements’).

2.6 Office Equipment and Vehicles

• Office equipment includes computers, servers, printers, photocopiers, EPABX, scanners, and similar.
• Vehicles include cars, commercial vehicles, material handling equipment like forklifts (if not integral to a specific plant component).

2.7 Investment Property (Ind AS only)

Buildings or land held to earn rentals or for capital appreciation (or both) are presented as Investment Property under Ind AS 40. Schedule III requires separate presentation and a movement schedule for investment property similar to PPE.

2.8 Right‑of‑Use (ROU) Assets under Ind AS 116

ROU assets arising from leases are presented as a separate line item on the face of the balance sheet. Schedule III post‑2021 requires lease liabilities to be separately presented within financial liabilities.

3) Specific Inclusions and Exclusions – Guidance from Case Law and Practice

While Schedule III is a presentation schedule (and not a recognition/measurement standard), Indian jurisprudence on depreciation and capital vs. revenue classification offers useful analogies when deciding whether an asset belongs to ‘building’, ‘plant’, or should be expensed as repairs. Key decisions include:

• Roads and drains within factory premises are part of ‘building’: The Supreme Court in CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. held that internal factory roads and drains form part of ‘building’ (not ‘plant’). Auditors often analogise this to classify internal roads under ‘building’ in PPE and depreciate accordingly.
• Buildings used as hotels or cinema halls are not ‘plant’: In CIT v. Anand Theatres, the Supreme Court ruled that the building itself does not become ‘plant’ merely because it houses a special‑purpose business. While this is an Income‑tax depreciation case, it informs classification judgment in financial statements.
• Capital vs. revenue repairs: In Ballimal Naval Kishore v. CIT, the Supreme Court held that extensive renovation bringing into existence a new or improved asset is capital in nature; by contrast, Empire Jute Co. Ltd. v. CIT clarified that ‘enduring benefit’ is not a conclusive test and each fact pattern must be evaluated. These principles aid in deciding whether an outlay should be capitalised to the relevant PPE class or expensed as repairs in the statement of profit and loss.

Practical mapping from case law to Schedule III presentation

• Internal factory road constructed to connect production sheds → classify as ‘Building’ (component: internal road) with appropriate useful life.
• Major retrofit that increases capacity/efficiency of a process line (e.g., replacement of turbine rotor with higher capacity) → capitalise to ‘Plant&Machinery’ as replacement of a significant part; derecognise carrying amount of replaced part under Ind AS 16.
• Renovation of office interiors with modular partitions and workstations → capitalise to ‘Furniture&Fixtures’; if items are glued or are integral to structure, evaluate as ‘Building/Leasehold improvements’.
• Landscaping and compound wall → typically part of ‘Building’; horticulture expenditure of routine nature may be expensed.

4) Division‑wise Formats and Key Disclosure Differences

Division I (AS) and Division II/III (Ind AS) differ in nomenclature and certain line‑items, but converge on governance‑driven disclosures post‑2021.

4.1 Common disclosures introduced/strengthened by MCA Notification G.S.R. 207(E) (effective 1 April 2021)

• Aging schedules: Trade payables and trade receivables aging, with separate presentation for dues to MSMEs and disputed amounts.
• CWIP and intangible assets under development: Project‑wise aging buckets (<1 year, 1–2 years, 2–3 years,>3 years) and completion timelines.
• Title deeds of immovable properties not held in company’s name: Comprehensive table including original owner, gross carrying value, reason for not being in company’s name, and whether the company is a promoter/director of the entity in whose name the title deed is held.
• Revaluation by registered valuer: Disclosure if the valuation is by a registered valuer defined under the Companies Act.
• Loans/advances to promoters, directors, KMPs and related parties: Disclosure of terms, amounts, and whether repayable on demand.
• Wilful defaulter status; relationship with struck‑off companies; charges not registered or delayed; utilisation of borrowings for non‑specific purposes.
• Proceedings under Benami Transactions (Prohibition) Act; undisclosed income; crypto/virtual currency holdings; specified financial ratios with explanations for>25% variation year‑on‑year.

4.2 Division‑specific nuances

• Division I (AS): Requires presentation consistent with AS‑10 (Revised). ROU assets arise only where companies have voluntarily adopted Ind AS‑like lease accounting; otherwise lease rentals are expensed as per AS‑19. Items like ‘Exceptional items’ may be presented consistent with AS‑5.
• Division II (Ind AS): Requires separate presentation of ROU assets and lease liabilities; OCI classification; equity changes via statement of changes in equity (SoCE); fair value measurement disclosures under Ind AS 113; and investment property movement under Ind AS 40.
• Division III (Ind AS NBFCs): Tailored for financial institutions—prominence to financial assets/liabilities; credit risk disclosures; expected credit loss (ECL) provisions; and asset classification consistent with prudential norms (though Schedule III is presentation, not prudential measurement).

5) Corporate Governance Principles Embedded in Schedule III

Schedule III is a governance tool. The post‑2021 amendments specifically target known opacity risks:

• Ownership and encumbrances: Title deed disclosures for immovable property deter benami or layered holdings.
• Timeliness and working capital discipline: Payables and receivables aging exposes stress, delays, and MSME non‑compliance.
• Stewardship over capex: CWIP and intangible development aging prevents perpetual ‘parked’ projects.
• Integrity of financing flows: Borrowing utilisation disclosures highlight diversions from sanctioned purposes.
• Related party accountability: Loans/advances to promoters/KMPs must be laid bare.
• Transparency in emerging risks: Crypto holdings, benami proceedings, undisclosed income—ensuring stakeholders are informed of non‑traditional exposures.

These disclosures, coupled with CARO 2020 reporting by auditors, create a 360‑degree view of governance for boards, audit committees and lenders.

6) Numerical Illustrations and Caselets

Illustration 1: Internal Factory Roads – Classification and Depreciation

Facts: XYZ Manufacturing Ltd. constructs internal roads within its factory premises at a cost of ₹1.20 crore to connect warehouses and production sheds. The roads are permanent, bitumen‑laid, and integral to movement of materials.

Analysis: Based on jurisprudence that internal factory roads form part of ‘building’, XYZ classifies the asset within ‘Buildings’. Useful life aligns with the company’s policy for building components (say, 10 years for internal roads). Under Ind AS, componentisation may require separate component tracking.

Accounting: Capitalise ₹1.20 crore to Buildings; depreciate over useful life. Disclose within PPE movement; if constructed as part of a larger project, include in CWIP until ready for intended use.

Illustration 2: Extensive Renovation vs. Repairs – Office Block

Facts: ABC Ltd. spends ₹2.40 crore on ‘repairs’ to an old office block—replacing structural beams, changing the facade, re‑wiring and HVAC upgrade, and adding two floors after strengthening.

Analysis: Guided by Ballimal Naval Kishore (extensive renovation creating a more enduring asset is capital), the outlay is capital in nature. Componentise into Building (structural), Plant (HVAC), Electrical (as part of plant/building per policy), and Furniture (interiors) as appropriate.

Accounting: Capitalise and depreciate. Expense only minor repairs that do not enhance capacity or life.

Illustration 3: Leasehold Land and ROU Asset (Ind AS)

Facts: PQR Ltd. obtains a 30‑year industrial plot on lease. Upfront premium ₹3.00 crore; annual lease rentals ₹15 lakh.

Analysis: Under Ind AS 116, recognise an ROU asset for the land along with a lease liability measured at present value of lease payments. The upfront premium is part of the ROU asset. Amortise the ROU asset over lease term (unless purchase option is reasonably certain to be exercised). Disclose lease liabilities separately on the balance sheet per Schedule III.

Accounting: ROU asset recognised; land is not shown as freehold/leasehold under PPE unless lease is in substance a purchase.

Illustration 4: CWIP Aging and Project Monitoring

Facts: LMN Ltd. has a greenfield plant under construction. CWIP as at 31 March 2026 totals ₹250 crore across 12 projects.

Requirement: Present CWIP aging:<1 year ₹90 crore; 1–2 years ₹60 crore; 2–3 years ₹40 crore;>3 years ₹60 crore. For overdue projects, disclose reasons and expected completion.

Governance: The disclosure forces management to articulate delays (e.g., environmental clearance, vendor insolvency) and budgets, enabling lenders to assess project risk.

Illustration 5: Title Deed Not in Company’s Name

Facts: The title deed for a warehouse (carrying value ₹15 crore) stands in the name of a merged entity; mutation is pending.

Schedule III: Tabular disclosure is mandatory with original owner’s name, reasons, and whether the company is promoter/director of the title‑holder. Auditors evaluate for potential risks (encumbrances, dispute) and may report under CARO as well.

Illustration 6: Furniture vs. Building – Modular Partitions

Facts: A bank branch invests ₹60 lakh in modular partitions fixed to floors/ceilings but demountable.

Analysis: Treated as ‘Furniture&Fixtures’ if not integral to structure; depreciate per policy (say, 5–8 years). If partitions are brickwork/gypsum permanently embedded, classify as ‘Building/Leasehold improvements’.

7) Notes‑level Line‑Item Disclosures for PPE under Schedule III

A robust note on PPE should include: (a) class‑wise movement (openings, additions, disposals, transfers, revaluations, impairment, closings); (b) useful lives compared to Schedule II; (c) assets retired from active use; (d) capitalised borrowing costs; (e) security/charge; (f) title deed status; (g) details of revaluation and valuer; and (h) restrictions on title (pledges, negative lien).

8) Sectoral Case Studies

Case Study A: Blue‑chip Manufacturing – Componentisation and Internal Roads

A large automotive manufacturer revamped its campus, adding internal concrete roads (₹85 crore), storm‑water drains (₹22 crore), and a new assembly line (₹420 crore). The company classified roads and drains under ‘Buildings’ and the assembly line under ‘Plant&Machinery’, with separate components (robotic arms, conveyors). Useful lives were aligned to component wear patterns. The disclosures included CWIP aging for projects exceeding 24 months and title deed status for recently acquired parcels. Lenders appreciated the transparency on delays and budget slippages.

Case Study B: Banking Sector – Leasehold Improvements vs. Furniture

A leading public sector bank rolled out a uniform branch format. Civil works (false ceilings, gypsum partitions permanently embedded, flooring, electrical ducting) were capitalised as ‘Leasehold improvements/Building’ and depreciated over the shorter of useful life or lease term. Moveable workstations, chairs, filing systems were capitalised as ‘Furniture&Fixtures’. Separate notes disclosed branch‑wise CWIP and closure of old projects, aligning with Schedule III’s governance emphasis.

Case Study C: Infrastructure – Toll Road SPV under Ind AS

A toll road SPV under a concession recognised an intangible ‘right to charge users’ and amortised it over the concession term. Schedule III presentation segregated intangible assets from PPE; roads were not carried as ‘building’ in the SPV’s books. However, the EPC subsidiary that built internal approach roads to its plant classified those roads within ‘Buildings’, reflecting the different economic substance and jurisprudence.

9) Disclosure Checklists (High‑risk Areas for 2024–25 Closings)

• PPE/Investment Property: Title deeds; revaluation details; assets pledged; restrictions on title; ROU asset and lease liability lines.
• Aging tables: Trade payables/receivables; CWIP; intangible assets under development.
• Loans/advances to promoters/KMP/related parties; terms and whether repayable on demand.
• Benami, undisclosed income, crypto holdings; relationship with struck‑off companies.
• Utilisation of borrowings; charges not registered within time and reasons; wilful defaulter status.
• Ratios: Provide numerator/denominator definitions and explanations for material changes.

10) Practical Tips for Auditors and Preparers

1. Start with the accounting standard (AS‑10/Ind AS 16/40/116) for recognition and measurement; then map to Schedule III presentation.

2. Create a master fixed asset register aligned to Schedule III classes; tag title deeds and location.

3. Build CWIP and intangible development trackers that auto‑feed aging disclosures.

4. For complex projects, componentise PPE and maintain derecognition trails for replaced parts (Ind AS 16 requirement).

5. For roads, drains and compound walls inside premises, default classification to ‘Building’ unless facts strongly suggest plant; document the rationale and case references.

6. For leasehold improvements, match depreciation to lease term if shorter than useful life.

7. Align CARO 2020 procedures with Schedule III disclosures—especially title deeds, revaluation, and benami/undisclosed income.

11) Conclusion

Schedule III is the linchpin of corporate financial reporting in India. Its enhanced disclosures since 1 April 2021 have materially raised the bar on transparency—particularly around ownership of assets, progress on capex, working capital discipline, and the integrity of financing flows. For companies and auditors, careful classification (building vs. plant; furniture vs. leasehold improvements), rigorous reconciliations, and well‑explained governance‑driven disclosures are essential. Applying jurisprudence—such as Gwalior Rayon (roads as building), Anand Theatres (building not plant), and Ballimal Naval Kishore (capital vs. repairs)—helps achieve consistent and defensible outcomes. Boards and audit committees should treat Schedule III not as a template to be filled, but as a stewardship framework to communicate faithfully with stakeholders.

Select References (non-exhaustive)

• MCA Notification G.S.R. 207(E) dated 24 March 2021 – Amendments to Schedule III (effective 1 April 2021).
• ICAI Guidance Notes on Division I (Non‑Ind AS), Division II (Ind AS) and Division III (NBFC Ind AS) to Schedule III (latest revisions).
• KPMG Accounting & Auditing Update (May 2021) summarising Schedule III changes.
• Key cases: CIT v. Gwalior Rayon Silk Mfg. Co. Ltd.; CIT v. Anand Theatres; Ballimal Naval Kishore v. CIT; Empire Jute Co. Ltd. v. CIT.