A screw gauge has a pitch of 1 mm and 100 circular divisions…

Step 1. Least count. $\dfrac{1\ \text{mm}}{100} = 0.01\ \text{mm}$.

Step 2. Zero error. The zero is $100 - 96 = 4$ divisions short of the line, so the gauge reads too little: zero error $= -4 \times 0.01\ \text{mm} = -0.04\ \text{mm}$.

Step 3. Observed. $2\ \text{mm} + 63 \times 0.01\ \text{mm} = 2.63\ \text{mm}$.

Step 4. Correct. $2.63\ \text{mm} - (-0.04\ \text{mm}) = 2.67\ \text{mm}$.