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-Regarding - Income Tax - 539/1989

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-Regarding Circular No. 539 Dated 13/7/1989 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 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. In this connection, attention is invited to Board's Circular No. 505 [F. No. 275/20/88-IT(B)], dated 19th February, 1988*, wherein the levy of surcharge @ 5% 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. 3. This may be brought to the notice of all Disbursing Officers of the Departments of the Government of India, State Governments, public sector undertakings, etc. In case any assistance is required, the Income-tax Assessing 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 Directorate of Income-tax (RS PR), 6th Floor, Mayur Bhavan, Connaught Circus, New Delhi-110 001. (Sd.) B.E. Alexander, Under Secretary, Central Board of Direct Taxes. * See [1988] 171 ITR (St.) 8.