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

Mehta Consultants enters into a contract to provide services lasting 60 days. Under the Income-tax Act, 2025, on which basis are the profits from this service contract determined?

The profits are determined on the project completion method. A service contract lasting not more than ninety days is specifically required to follow this method, overriding the general percentage of completion rule under the Income-tax Act, 2025.

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

Explanation

For a service contract of duration not more than ninety days, profits are determined on the project completion method. The percentage of completion method is the general rule, but the 90-day exception overrides it here. Straight line applies only to contracts with an indeterminate number of acts over a specified period.

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