Amended and updated notes on section 43CB of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to computation of income from construction and service contracts.
Chapter IV (Sections 14 to 59) of the Income Tax Act 1961 deals with the provisions related to computation of total income. Section 43CB of IT Act 1961-2022 provides for computation of income from construction and service contracts.
Recently, we have discussed in detail section 43CA (Special provision for full value of consideration for transfer of assets other than capital assets in certain cases) of IT Act 1961. Today, we learn the provisions of section 43CB of Income-tax Act 1961. The amended provision of section 43CB is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 43CB of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-43CB: Computation of income from construction and service contracts
Section 43CB(1) of Income Tax Act
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.
Section 43CB(2) of Income Tax Act
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.