Income Tax Deduction Rules: 2% for Contractors, 1% for Sub-contractors, 5% Surcharge on Deductions Post-1987.

Under section 194C of the Income-tax Act, 1961, entities such as governments, local authorities, corporations, companies, and co-operative societies must deduct 2% income tax at source on payments to resident contractors. Contractors must deduct 1% on payments to sub-contractors. No deduction is required if the contract amount is under Rs. 10,000. An amendment in the Finance Act, 1987, mandates a 5% surcharge on these deductions for payments after December 16, 1987. This information is to be disseminated to all relevant disbursing officers and state undertakings for compliance. Copies of the circular are available for reference.

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