§ 57
Chapter IV — Computation Of Total Income
Revenue recognition for construction and service contracts
Income-tax Act, 2025
Business owners must recognize revenue from construction and service contracts based on the percentage of completion method. However, for service contracts with a duration of 90 days or less, the project completion method applies, and for contracts with an indeterminate number of acts over time, the straight line method is used. Key considerations include:
- contract revenue includes retention money
- contract costs are not reduced by incidental income like interest or dividends
📜 Official text of the section +
57. (1) The profits and gains arising from a construction contract or a
contract for providing services, shall be determined on the basis of percentage
of completion method, subject to provisions of sub-section (2), as per the income
computation and disclosure standards notified under section 276(2).
(2) For the purposes of sub-section (1), the profits and gains arising from a contract
for providing services shall be determined—
( a) on the basis of project completion method, if the duration of such con-
tract is not more than ninety days;
( b) on the basis of straight line method, if the contract involves indeterminate
number of acts over a specified period of time.
(3) For the purposes of percentage of completion method, project completion method
or straight line method under this section,—
( a) the contract revenue shall include retention money;
( b) the contract costs shall not be reduced by any incidental income in the
nature of interest, dividends or capital gains.
Special provision for computing profits and gains of business or profession
on presumptive basis in case of certain residents.
Plain-language summary — not the official text. Refer to the bare Act and confirm with a professional for your specific case.