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III - Construction contracts (w.e.f. AY 2017-18)

ICDS - 03 - Income computation and disclosure standards - w.e.f. AY 2017-18 - Other Direct Tax Provisions - ICDS - 03 - C. Income Computation and Disclosure Standard III relating to construction contracts (Vide notification no. 87/2016 dated 29-9-2016 w.e.f. Assessment Year 2017-18) Preamble This Income Computation and Disclosure Standard is applicable for computation of income chargeable under the head "Profits and gains of business or profession" or "Income from other sources&qu .....

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re Standard with the meanings specified: (a) "Construction contract" is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use and includes : (i) contract for the rendering of services which are directly related to the construction of the asset, for example, those for the services of project managers and architects; ( .....

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se costs or a fixed fee. (d) "Retentions" are amounts of progress billings which are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects have been rectified. (e) "Progress billings" are amounts billed for work performed on a contract whether or not they have been paid by the customer. (f) "Advances" are amounts received by the contractor before the related work is performed. (2) Words and expressio .....

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ted in a number of ways which, for the purposes of this Income Computation and Disclosure Standard, are classified as fixed price contracts and cost plus contracts. Some construction contracts may contain characteristics of both a fixed price contract and a cost plus contract, for example, in the case of a cost plus contract with an agreed maximum price. Combining and Segmenting Construction Contracts 5. The requirements of this Income Computation and Disclosure Standard shall be applied separat .....

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posals have been submitted for each asset; (b) each asset has been subject to separate negotiation and the contractor and customer have been able to accept or reject that part of the contract relating to each asset; and (c) the costs and revenues of each asset can be identified. 7. A group of contracts, whether with a single customer or with several customers, should be treated as a single construction contract when: (a) the group of contracts is negotiated as a single package; (b) the contracts .....

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sign, technology or function from the asset or assets covered by the original contract; or (b) the price of the asset is negotiated without having regard to the original contract price. Contract Revenue 9. Contract revenue shall be recognised when there is reasonable certainty of its ultimate collection. 10. Contract revenue shall comprise of: (a) the initial amount of revenue agreed in the contract, including retentions; and (b) variations in contract work, claims and incentive payments: (i) to .....

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act activity in general and can be allocated to the contract; (c) such other costs as are specifically chargeable to the customer under the terms of the contract; and (d) allocated borrowing costs in accordance with the Income Computation and Disclosure Standard on Borrowing Costs. These costs shall be reduced by any incidental income, not being in the nature of interest, dividends or capital gains, that is not included in contract revenue. 13. Costs that cannot be attributed to any contract act .....

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a contract are recognised as an expense in the period in which they are incurred, they are not included in contract costs when the contract is obtained in a subsequent period. 15. Contract costs that relate to future activity on the contract are recognised as an asset. Such costs represent an amount due from the customer and are classified as contract work in progress. Recognition of Contract Revenue and Expenses 16. Contract revenue and contract costs associated with the construction contract .....

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o the proportion of work completed. 18. The stage of completion of a contract shall be determined with reference to: (a) the proportion that contract costs incurred for work performed upto the reporting date bear to the estimated total contract costs; or (b) surveys of work performed; or (c) completion of a physical proportion of the contract work. Progress payments and advances received from customers are not determinative of the stage of completion of a contract. 19. When the stage of completi .....

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