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CMA Intermediate · Direct and Indirect Taxation · Basic Concepts, Basis of Charge and Capital and Revenue Receipts

Under section 57 of the Income-tax Act, 2025, profits and gains from a construction contract are ordinarily determined on which basis?

The general basis is the percentage of completion method under the notified income computation and disclosure standards. Section 57(1) prescribes it for construction and service contracts, while the project completion and straight line methods are limited exceptions for certain service contracts only.

  1. APercentage of completion method, as per the notified income computation and disclosure standardsCorrect
  2. BProject completion method in every case
  3. CStraight line method in every case
  4. DCash receipts basis, as and when payments are received

Explanation

Section 57(1) states that profits and gains from a construction contract or a service contract are determined on the percentage of completion method, per the notified ICDS, subject to the exceptions in sub-section (2). The project completion and straight line methods apply only to specified service contracts, so they are not the general rule for construction contracts.

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