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

Kaveri Services Pvt. Ltd. enters into a contract to provide services over 60 days. As per the Income-tax Act, 2025, on what basis are the profits from this contract determined?

The project completion method applies. Section 57(2)(a) provides that profits from a service contract whose duration is not more than ninety days are determined on that basis, and a 60-day contract qualifies. Percentage of completion is the general method but is overridden by this exception.

  1. APercentage of completion method
  2. BStraight line method
  3. CProject completion methodCorrect
  4. DCash basis of receipts

Explanation

Under section 57(2)(a), profits from a service contract of not more than ninety days are determined by the project completion method. A 60-day contract falls within this limit. Percentage of completion is the general rule, but it is subject to this exception.

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