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

Kaveri Services Ltd undertakes a service contract of 80 days' duration for a customer in Pune. Under the Income-tax Act, 2025, on which basis are the profits from this contract determined?

The project completion method applies. Under the Income-tax Act, 2025, profits from a service contract lasting not more than ninety days are determined on project completion. The percentage of completion method is the general rule but is displaced by this short-duration exception.

  1. APercentage of completion method
  2. BStraight line method
  3. CProject completion methodCorrect
  4. DCash basis at the time of each receipt

Explanation

Section 57(2)(a) provides that a service contract of not more than ninety days is taxed on the project completion method. Percentage of completion is the general rule, which this exception overrides. Straight line applies only to contracts with an indeterminate number of acts over a specified period.

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