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

Shree Infra Ltd. has a construction contract with a contract value of ₹10,00,000, of which ₹1,00,000 is retention money withheld by the customer. For determining profits under the percentage of completion method as per the Income-tax Act, 2025, how is the retention money treated?

Retention money forms part of contract revenue. Section 57(3)(a) says contract revenue includes retention money for the percentage of completion, project completion and straight line methods. It is therefore not deferred until release by the customer, and the whole ₹10,00,000 is contract revenue.

  1. AExcluded from contract revenue until it is released by the customer
  2. BIncluded in contract revenueCorrect
  3. CTreated as a reduction of contract costs
  4. DTaxed only in the tax year in which it is actually received

Explanation

Section 57(3)(a) states that for the percentage of completion method, project completion method or straight line method, the contract revenue shall include retention money. Excluding it until release would understate revenue, so that option is wrong.

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