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CMA Final · Direct Tax Laws and International Taxation · Income Computation and Disclosure Standards (ICDS)

Ananya Services Ltd. enters a contract to provide services to a client for a period of 80 days. Under the Income-tax Act, 2025, on what basis are the profits from this contract determined?

The profits are determined on the project completion method, because the services contract lasts 80 days, which is not more than ninety days. The percentage of completion method is the general rule only for longer contracts.

  1. APercentage of completion method
  2. BProject completion methodCorrect
  3. CStraight line method
  4. DCash system irrespective of the ICDS

Explanation

Section 57(2)(a) provides that profits from a services contract of duration not more than ninety days are determined on the project completion method. 80 days is within the limit, so the percentage of completion method in option A does not apply.

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