15. Insertion of new section 43CB.
After section 43CA of the Income-tax Act, the following section shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2017, namely:-
Computation of income from construction and service contracts.
“43CB. (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 in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145:
Provided that profits and gains arising from a contract for providing services,-
(i) with duration of not more than ninety days shall be determined on the basis of project completion method;
(ii) involving indeterminate number of acts over a specific period of time shall be determined on the basis of straight line method.
(2) For the purposes of percentage of completion method, project completion method or straight line method referred to in sub-section (1)-
(i) the contract revenue shall include retention money;
(ii) the contract costs shall not be reduced by any incidental income in the nature of interest, dividends or capital gains.”.
Notes on Clauses:
Clause 15 of the Bill seeks to insert a new section 43CB in the Income-tax Act relating to computation of income from construction and service contracts.
The proposed new section provides that profits and gains of a construction contract or a contract for providing services shall be determined on the basis of percentage of completion method in accordance with the income computation and disclosure standards notified under sub-section (2) of section 145. It is further proposed to provide that in the case of a contract for providing services with duration less than ninety days, the profits and gains shall be determined on the basis of project completion method. It is also proposed to provide that in the case of a contract for provision of services involving indeterminate number of acts over a specific period of time, the profits and gains arising from such contract shall be determined on the basis of a straight line method.
It is also proposed to provide that for this purpose the contract revenue shall include retention money and the contract costs shall not be reduced by any incidental income in the nature of interest, dividends or capital gains.
This amendment will take effect retrospectively from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
