Section 57
Section 57: revenue recognition for construction and service contracts
Section 57 fixes how profits and gains from construction contracts and service contracts must be recognised for tax purposes - generally the percentage of completion method, with two specific alternatives for particular kinds of service contracts.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
The general rule: percentage of completion method
Section 57(1) provides that profits and gains from a construction contract, or a contract for providing services, are determined on the basis of the percentage of completion method, subject to Section 57(2), and as per the income computation and disclosure standards notified under Section 276(2).
Exceptions for certain service contracts
Section 57(2) carves out two situations where a different method applies specifically to contracts for providing services:
- Project completion method - if the duration of the service contract is not more than ninety days.
- Straight line method - if the contract involves an indeterminate number of acts over a specified period of time.
Common rules across all three methods
Section 57(3) applies two rules regardless of which method (percentage of completion, project completion, or straight line) is used: contract revenue must include retention money; and contract costs must not be reduced by incidental income such as interest, dividends or capital gains.
Frequently asked questions
Which method is used to recognise profit on a construction contract?
The percentage of completion method, as per the income computation and disclosure standards notified under Section 276(2), unless the contract is a services contract falling under one of the two exceptions in Section 57(2).
What method applies to a short service contract?
The project completion method applies if the duration of a contract for providing services is not more than ninety days.
Does retention money count as contract revenue?
Yes - Section 57(3)(a) specifically requires that contract revenue include retention money, regardless of which recognition method is used.
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Get expert guidance on construction and service contract revenue recognitionLast updated 9 September 2026