Income Computation & Disclosure Standards (ICDS)
Issued by CBDT under power under section 145(2)of Income Tax Act, 1961 vide notification no. 32/2015, dated 31-3-2015
Purpose: Computation of Income under PGBP head and Income from Other sources head
Applicability: All assessee following mercantile accouting system
W.e.f. 01/04/2015 i.e. Assessment year 2016-17
ICDS - III - Construction Contracts
S. No. | ICDS | Particulars |
III | Construction Contracts | 1. Scope - Determination of income for a construction contract of a contractor |
2. Terms used - Construction Contracts , Fixed Price Contracts ,Cost plus contract , Retentions, Progress billing and Advances |
3. Calculation under this ICDS will be separately for each contract except where it is necessary it can be for a component of a contract or group of contracts together. |
4. In case a contract have a number of assets, each separate asset will be treated as a separate contract if separate proposal and negotiation is there and also Cost and revenue is separately identified. |
5. A group of contracts will be treated a single construction contract if they negotiated as a single package, they are interrelated and contracts are performed concurrently. Group of contracts may be with a single customer or multiple customers. |
6. Any additional assets or amendment in existing construction contract will be treated a separate construction contract if the assets differs significantly or covered by original contract or separate negotiation has been done. |
7. Contract revenue will be recognized on reasonable certainty of ultimate collection. |
8. Contract cost shall include direct cost, allocated cost, contract or customer specific cost and allocated borrowing cost. Incidental income will be reduced. |
9. Cost incurred for securing a contract will also include in contract cost. |
10. Contract revenue an Contract cost will be recognized based on stage of completion of the contract at the reporting date. This is called percentage of completion method. |
11. Under percentage of completion method contract revenue is matched with contract costs incurred up to the stage of completion. |
12. The stage of completion will be determined on the basis of completion of a physical part of the contract work or survey of work performed or proportion of the contract cost incurred. |
13. During the early stage of contract where it is difficult to determine stage of completion, contract revenue will be recognized only to the extent of cost incurred.The early stage of a contract shall not extend beyond 25 % of the stage of completion. |
14. In change of estimates of contract, only revised estimates will be considered in the change period and subsequent periods. |
15. Disclosures: Contract revenue recognized, Method to calculate Stage of completion, for contract in progress - cost incurred, advance received and retention amount. |
Percentage-of-completion accounting recognizes contract revenue as work progresses, matching revenue to costs under ICDS for contractors. Contract revenue and contract costs must be recognised using the
percentage of completion method applied per contract unless components or interrelated contracts warrant aggregation. Contract cost comprises direct and allocated costs, customer-specific costs, allocated borrowing costs and costs to secure the contract, net of incidental income. Stage of completion is determined by physical progress, survey, or proportion of costs incurred; in early stages revenue recognition is limited to costs incurred. Revenue is recognised only when ultimate collection is reasonably certain. Changes in estimates apply to the change period and thereafter. Disclosures must state recognised revenue, stage-measurement method, costs incurred, advances and retentions for contracts in progress.
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