General Reserve

General Reserve – A general reserve is a portion of a company’s profits that is set aside to strengthen its financial position and meet future uncertainties or contingencies. Unlike specific reserves, which are created for particular purposes (like dividend equalization or asset replacement), general reserves can be used for any business requirement, such as expansion or covering unforeseen losses. The transfer of profit to a general reserve reflects prudent financial management and helps maintain liquidity and stability within the company.

Example: A company earning ₹10 crore in FY 2022–23 transfers ₹1 crore to its general reserve to safeguard against future financial risks. The income is assessed in AY 2023–24.