Payments made to contractors and sub-contractors-Deduction of tax at source under section 194C of the Income-tax Act, 1961, on income comprised therein-Levy of surcharge - Income Tax - 505/1988

Payments made to contractors and sub-contractors-Deduction of tax at source under section 194C of the Income-tax Act, 1961, on income comprised therein-Levy of surcharge Circular No. 505 Dated 19/2/1988 To All State Governments and Union Administrations. Sir, Subject: Payments made to contractors and sub-contractors-Deduction of tax at source under section 194C of the Income-tax Act, 1961, on income comprised therein-Levy of surcharge. According to the provisions of section 194C of the Income-tax Act, 1961, any person responsible for paying any sum to any resident contractor for carrying out any work in pursuance of a contract between the contractor and the agencies specified therein shall, at the time of credit of such sum to the account of the contractor or payment thereof in cash, etc., deduct an amount equal to 2% of such sum as income-tax on income comprised therein. The agencies are:- (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company; or (e) any co-operative society. Similarly when a contractor makes payment to a resident sub-contractor in pursuance of a contract for carrying out the whole or any part of the work undertaken by him, he is required to deduct an amount equal to 1% of such sum as income-tax on the income comprised therein. However, no such deduction is required to be made from any sum credited or paid in pursuance of a contract, the consideration for which does not exceed Rs. 10,000. 2. By the Finance (Amendment) Act, 1987 (No. 46 of 1987), sub-section (4A) has been inserted after sub-section (4) in section 2 of the Finance Act, 1987. According to the said amendment, in cases in which tax has to be deducted under section 194C of the Income-tax Act, the deduction shall be made at the rates specified in that section and shall be increased by a surcharge for the purpose of the Union calculated at the rate of 5% of such deduction. The surcharge so worked out shall be deductible only in respect of payments made after 16-12-1987. 3. This may be brought to the notice of all Disbursing Officers and State Undertakings under the control of the State Governments, etc., for immediate compliance and necessary action. In case, any assistance is required, the Income-tax Officer concerned and/or the Local Public Relations Officer of the Income-tax Department may be approached for the same. 4. Copies of the circular are available with the Director of Inspection (RS PR), 6th Floor, Mayur Bhavan, Connaught Circuls, New Delhi-1. Yours faithfully, (Sd.) B.E. Alexander, Under Secretary, Central Board of Direct Taxes.