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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, the straight line method applies to a contract for providing services when:

The straight line method applies when a service contract involves an indeterminate number of acts over a specified period of time, as stated in section 57(2)(b). Merely exceeding ninety days or having retention money does not make it applicable.

  1. AThe contract involves an indeterminate number of acts over a specified period of timeCorrect
  2. BThe contract lasts more than ninety days
  3. CThe contract is a construction contract with retention money
  4. DThe contract involves a determinate number of acts completed within one tax year

Explanation

Section 57(2)(b) prescribes the straight line method for a service contract involving an indeterminate number of acts over a specified period. Duration beyond ninety days alone does not trigger it; such contracts fall under the percentage of completion method by default.

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