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

Under the Income-tax Act, 2025, for a contract for providing services whose duration is not more than ninety days, the profits and gains are determined on which basis?

A service contract lasting not more than ninety days is taxed on the project completion method. The Act carves this out of the general percentage of completion rule. Straight line applies only where there are indeterminate acts over a specified period.

  1. APercentage of completion method
  2. BProject completion methodCorrect
  3. CStraight line method
  4. DCash basis irrespective of the accounting method followed

Explanation

Section 57(2)(a) provides that profits from a service contract of ninety days or less are determined on the project completion method. The straight line method applies only to contracts involving an indeterminate number of acts over a specified period. The percentage of completion method is the general rule for longer contracts.

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