The new Income Tax Bill, 2025 provides for a specific section which outlines the rules for determining profits and gains from construction contracts and service contracts for the purpose of computation of tax.
In the I-T Act, 1961, the ‘Income Computation & Disclosure Standards’ (ICDS) were introduced as a separate section, distinct from the provisions governing profits and gains from business and profession. But the bill seeks to integrate the ICDS provisions within the broader framework of business and profession income, streamlining its application and interpretation, say experts.
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“This alignment is expected to enhance clarity and consistency in tax computation, reducing ambiguity in the treatment of income and ensuring uniform compliance across businesses,” said Amit Maheshwari, tax partner, AKM Global.
The new provision establishes the project completion method as a standard method for recognizing profit on contracts whose duration is not more than 90 days, and provides a straight-line method for contracts which involves an indeterminate number of acts over a specified period of time, say experts.
It also clarifies that retention money shall be included in contract revenue and the contract costs shall not be reduced by any incidental income in the nature of interest, dividends or capital gains, explained Ritika Nayyar, partner, Singhania & Co.
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Moreover, the Bill has removed Section 54E, in the present Act, which governed the exemption of capital gains tax on the transfer of certain capital assets. This section provided relief to taxpayers who have sold a long-term capital asset and wish to avoid paying tax on the gains from the sale. Under this section, taxpayers can avoid paying tax on the gains by investing the proceeds from the sale in specified bonds within a certain period.
Experts say that 54E had effectively become obsolete, as it applied only to capital assets transferred before April 1, 1992. With this timeline long past, its removal streamlines the tax framework by eliminating outdated provisions, they say.
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