Exceptional items: meaning, how they work in India and examples

Exceptional items are income or expenses that are unusual in size or nature and that a company reports on their own line so that readers can see them. They are not part of the normal running of the business. Typical examples are a gain on selling a subsidiary, a write-down of goodwill, restructuring and layoff costs, a legal settlement, and the cost of closing a business line.

The point of the separate line is honesty about the year. If a startup books a ₹40 crore gain from a one-time stake sale, the reader should know that gain is not repeating revenue.

Companies in India present exceptional items between operating results and the tax line. The profit and loss statement shows profit before exceptional items and tax, then the exceptional items, then profit before tax. Tax and the final profit follow.

In the quarterly results that listed companies file with the stock exchanges, the same line has its own row. For a startup that has just listed, this row can swing a quarter from loss to profit, so it is among the first places to look.

Schedule III to the Companies Act, 2013, which sets the format of company accounts, provides a line for exceptional items in the profit and loss statement. Ind AS 1, in paragraphs 97 and 98, requires a company to disclose the nature and amount of material items of income and expense separately, and it lists examples such as write-downs, restructuring costs, disposals and litigation settlements. Ind AS 1 does not allow items to be shown as extraordinary.

For listed companies, the SEBI Listing Obligations and Disclosure Requirements Regulations, 2015, in regulation 33, prescribe the results format, which includes the exceptional items row. As of November 2026, neither the Act nor Ind AS defines exceptional in a strict way, so each company's board and auditor decide what to place there, based on size and nature.

Several kinds of item turn up again and again in the accounts of Indian startups, especially those that have raised money, bought other businesses or listed. Reading the notes shows which kind a given item is, and whether it came from the business or from a transaction.

A gain on the sale of an investment or a stake in a subsidiary is the most common gain. Among charges, impairment of goodwill after an acquisition that did not work out is the most common, followed by severance and restructuring costs after layoffs, costs of closing a unit, and legal settlements. Fair value changes on investments, including on convertible instruments, can also appear in this line in some companies.

• Gains: sale of a stake, sale of a business, release of a provision no longer needed.
• Charges: goodwill impairment, restructuring and severance, write-off of an investment.
• Mixed: settlement of a dispute, which may be a gain or a cost.
• Watch for the same label in several consecutive years.

A large gain can lift profit before tax above zero even when the business loses money every month. A news story may then say that a startup turned profitable, when the operating business did not change. The opposite also happens: a large write-off can make a healthy business look loss-making for one year.

Companies also have discretion. Costs that recur, such as repeated restructuring, may be labelled exceptional each year, and readers should be wary of an exceptional line that appears in every year's results.

The auditor checks that the amount is right and that the item is described properly in the notes. If a company moves a recurring cost into the exceptional line to look better, an auditor or a stock exchange reviewer can ask why. In an IPO, SEBI reviews the restated accounts and the company has to explain the nature of each such item in the offer document.

For a listed company, the exceptional items row also appears in the quarterly results released to the stock exchanges. Analysts usually publish two figures, the reported profit and the profit before exceptional items, and the gap between them tells the story of the quarter.

Start with the line profit before exceptional items and tax, which most results show already. If it is not shown, add back exceptional losses and subtract exceptional gains from profit before tax. Then compare that figure across years.

The same check applies to profit after tax. Take the final profit, remove the post-tax effect of the exceptional items if the notes give it, and then compare. Look at the notes to the accounts, which describe each exceptional item and sometimes give its tax effect.

• Profit before tax: ₹5 crore, as reported.
• Less exceptional gain: ₹20 crore, from selling a stake.
• Result before exceptional items: minus ₹15 crore, the underlying loss.
• If the item were a charge of ₹20 crore, the same step would add it back instead.

Exceptional items sit inside the audited profit and loss statement. Adjusted EBITDA is different: it is a number a company calculates and presents outside the accounts, and the company chooses what to add back. Items such as ESOP costs, one-time costs and deferred tax can also move profit, but they are separate lines with their own rules.

Revenue from operations and other income are also different. A one-time gain recorded in other income, rather than as an exceptional item, is still outside the normal business, but it is not flagged. A reader who wants the real operating picture should start with revenue from operations, then operating costs, and then check both other income and exceptional items.

Ask three questions. Did the company turn profitable before or after exceptional items? Was the gain a cash sale or a revaluation, such as a fair value gain on an investment? Does the same item show up in other years? The notes and the management commentary in the results usually answer all three.

This guide is general information, not accounting advice, so check with a chartered accountant before relying on it for a decision.