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

Sharma Infra Ltd has a construction contract with total contract revenue of Rs 5,00,000 under which retention money of Rs 40,000 is withheld by the customer. Under the Income-tax Act, 2025, how is retention money treated in determining contract revenue under the percentage of completion method?

Retention money is included in contract revenue, so the full Rs 5,00,000 is used for the percentage of completion method. Section 57(3)(a) expressly requires inclusion, so deducting the Rs 40,000 withheld by the customer would be incorrect.

  1. AExcluded from contract revenue until it is released by the customer
  2. BIncluded in contract revenue, so revenue for computation is Rs 5,00,000Correct
  3. CIncluded only to the extent of 50% of the amount
  4. DExcluded, so revenue becomes Rs 4,60,000

Explanation

Section 57(3)(a) states that contract revenue shall include retention money. The Rs 40,000 withheld therefore remains part of the Rs 5,00,000 revenue. Reducing revenue to Rs 4,60,000 wrongly deducts the retention money.

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