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of <h1>Tax Deduction Rules for Contractors: 2% for Contractors, 1% for Sub-contractors, With Surcharge and Penalties.</h1> Section 194C of the Income-tax Act, 1961 mandates the deduction of tax at source from payments made to contractors and sub-contractors. Entities such as governments, local authorities, corporations, and others must deduct 2% from contractors, while contractors deduct 1% from sub-contractors. A surcharge applies: 12% for non-corporate residents and 15% for domestic companies. No deduction is needed if the contract is below Rs. 10,000. Failure to comply results in penalties, interest, or imprisonment. Tax deductors must issue certificates and file annual returns. The circular advises consulting the Income-tax Act and Rules for further details.
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