115. Payments to contractors and sub-contractors – Levy of surcharge
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 for any sum credited or paid in pursuance of a contract the consideration of which does not exceed Rs. 10,000.
2. In this connection attention is invited to Board’s Circular No. 505, dated 19-2-1988. Wherein the levy of surcharge at the rate of 5 per cent as introduced by the Finance (Amendment) Act, 1987 was communicated to you. According to the provisions of the Finance Act, 1989, 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 purposes of the Union calculated at the rate of eight per cent of such deduction.
Circular : No. 539, dated 13-7-1989