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

Which statement about section 57(3) of the Income-tax Act, 2025 is correct for computing profits under percentage of completion, project completion or straight line method?

Contract costs are not reduced by incidental income in the nature of interest, dividends or capital gains. Section 57(3)(b) says so, and section 57(3)(a) also requires contract revenue to include retention money.

  1. AContract costs are not reduced by incidental income in the nature of interest, dividends or capital gainsCorrect
  2. BContract revenue excludes retention money until it is released
  3. CContract costs are reduced by incidental interest income
  4. DRetention money is taxed only in the year of its release, outside the contract revenue

Explanation

Section 57(3)(b) says contract costs shall not be reduced by incidental income such as interest, dividends or capital gains. Section 57(3)(a) says contract revenue includes retention money, which makes the options excluding retention money or reducing costs wrong.

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