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

Sunrise Engineers, an Indian firm, has a contract to provide maintenance services that will run for 60 days. For computing business income under the Income-tax Act, 2025, which method applies to profits from this contract?

The project completion method applies, because the contract for services lasts 60 days, which is not more than ninety days. Percentage of completion is the general rule, but the short-duration exception displaces it. Straight line is meant for indeterminate acts over a specified period.

  1. APercentage of completion method
  2. BProject completion methodCorrect
  3. CStraight line method
  4. DCash method irrespective of the contract duration

Explanation

Under section 57(2)(a), a services contract whose duration is not more than ninety days is taxed on the project completion method. A 60-day contract meets this test. Percentage of completion is the general rule but is overridden here. Straight line applies to contracts with an indeterminate number of acts over a specified period.

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