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

Sagar Infra Ltd undertakes a construction contract. The contract revenue under the percentage of completion method, as per the Income-tax Act, 2025, is to be determined with which treatment of retention money and incidental interest income on contract funds?

Retention money forms part of contract revenue, and contract costs are not reduced by incidental income such as interest, dividends or capital gains. Hence retention money is included while interest does not reduce costs, as the Income-tax Act, 2025 provides for construction contracts.

  1. ARetention money is excluded from contract revenue; interest income reduces contract costs
  2. BRetention money is included in contract revenue; interest income does not reduce contract costsCorrect
  3. CRetention money is included in contract revenue; interest income reduces contract costs
  4. DRetention money is excluded from contract revenue; interest income does not reduce contract costs

Explanation

The Act provides that contract revenue includes retention money and that contract costs are not reduced by incidental income such as interest, dividends or capital gains. The other options reverse one or both of these treatments.

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