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
Circular No. 505 was issued by the Central Board of Direct Taxes on 19 February 1988. Its subject is 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.
Tells deductors under section 194C to add a 5 per cent Union surcharge to the tax deducted, for payments made after 16-12-1987. The Finance (Amendment) Act, 1987 inserted sub-section (4A) after sub-section (4) in section 2 of the Finance Act, 1987, providing that where tax is deductible under section 194C it is to be deducted at the section's own rates and then increased by that surcharge. The circular restates the section: 2 per cent from a sum paid to a resident contractor by the Central or a State Government, a local authority, a statutory corporation, a company or a co-operative society, at credit or payment, and 1 per cent from a contractor's payment to a resident sub-contractor, with no deduction where the consideration for the contract does not exceed Rs. 10,000.
The amending Act added a surcharge on section 194C deductions and deductors had to be told from what date it applied.
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.
On an old short deduction demand against a contractee for omitting the surcharge on contract payments.
Source: the Income Tax Department’s own published text — its page for this instrument.