505 : Circular No. 505, dated 19-02-1988

1114. Deduction of tax at source, as per the rates specified in the section, to be increased by a surcharge at the rate of 5 per cent - Effective from16-12-1987

1. According to the provisions of section 194C 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 per cent 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 per cent of such sum as income-tax on 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, 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 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 per cent of such deduction. The surcharge so worked out shall be deductible only in respect of payments made after 16-12-1987.

Circular : No. 505 [F.No. 275/20/88-IT(B)], dated 19-2-1988.