TDS on Catering Services: Section 194C Income Tax

Introduction – TDS on catering services – Section 194C of Income Tax Act

Section 194C provides for TDS to be deducted on payment made for catering services. So, TDS payment made for availing catering services is required to be deducted under Section 194C of the Income Tax Act 1961 (hereinafter referred to as the “Act”). When a person makes a payment to the contractor on a contract, the person has to deduct TDS on such payment made for catering services. Let’s understand this concept in detail.

What are ‘catering services for the purposes of Section 194C of the Income Tax Act, 1961?

Catering services provide food services to a particular site like a hotel, cruise, etc. but do not include only a supply of food. 

Applicability of TDS provisions on Catering Services under Section 194C of the Income Tax Act, 1961

When there is a contract of catering services between a contractor and ‘specified persons’ and a payment is made to the contractor for undertaking any ‘work’ in the nature of catering services in furtherance to the contract, TDS is to be deducted on such payment as per the specified rate.

Note: A contract between a sub-contractor and specified persons will also be liable to TDS under Section 194C of the Income Tax Act, 1961.

Who are considered as “specified persons” for the purpose of deduction of TDS on Catering Services under Section 194C of the Income Tax Act, 1961?

A specified person, as per Section 194C includes:

1. The Central Government;
2. Any of the State Governments;
3. Any Local Authority;
4. A company;
5. A cooperative society;
6. A firm;
7. A trust;
8. Any State authority responsible for providing housing accommodation or planning or development of cities, towns, etc.
9. A society registered under the Societies Registration Act, of 1860;
10. A university established or incorporated under the respective Central, State, or Provincial legislation;
11. A Government of a foreign country or a non-resident corporate entity or any other association or body of such foreign State;
12. An individual, BOI, AOP, or HUF has total sales, turnover, or gross receipts of more than Rs. 1 crore (in case of business) or Rs. 50 Lakh (in case of profession).

What will be considered as “work” under Section 194C of the Income Tax Act, 1961?

The term ‘work’ under Section 194C will mean: –

1. Catering Services

Rate of deduction of TDS on Catering Services under Section 194C of the Income Tax Act, 1961

The rate of TDS to be deducted is as under: –

• TDS shall be deducted at the following rates under Section 194C of the Act depending on whether the payment is made to an Individual/ HUF or other than an Individual/ HUF:
  • • Credit is given/ Payment is made to an Individual/ HUF – 1%
    • Credit is given/Payment is made to a person other than an Individual/ HUF – 2%

• Furthermore, no Surcharge and Higher Education Cess (“HEC”) shall be added to the above-mentioned rates.

Moreover, Section 206AB  of the Act, TDS at the rate of 20% shall be deducted where the payee does not provide the PAN number to the deductor.

Time of deducting TDS on Catering Services under Section 194C of the Income Tax Act, 1961

TDS is required to be deducted in case of payment made to the contractor when –

• Such sum is credited to the account of payee; or
• Payment is made to the payee in cash or by way of issue of cheque/ draft/ any other mode other than the ones mentioned

whichever event takes place earlier.

Deemed application of provisions of TDS on Catering Services

When the amount is credited to the Suspense Account or any other account in the books of the person who is liable to make payment to the payee it will be deemed to have been credited to the account of the payee and the provisions for deduction of TDS on payment made on catering services will apply.

Threshold Limit for deduction of TDS on Catering Services under Section 194C of the Income Tax Act, 1961

• The threshold limit for deduction of TDS on payment made towards Catering Services is as follows:
  • Payment should not exceed 30,000 in case of a single transaction and;
  • Aggregate payments made during the relevant FY should not exceed Rs. 1,00,000
• If it exceeds the threshold limit, then the rate of deduction as provided under Section 194C of the Act will be applicable, i.e., 1% or 2%.

Exemption from Income Tax deduction under Section 194C of the Income Tax Act, 1961

• The sum doesn’t exceed Rs. 30,000: Where the amount credited/ paid does not exceed Rs. 30,000 in a single transaction, no TDS shall be deducted.
• The sum doesn’t exceed an aggregate of Rs. 1,00,000: Further, no TDS shall be deducted, where the amount or aggregate of amounts credited/ paid to the recipient during the FY does not exceed Rs. 1,00,000.
• Personal Purpose: Where consideration paid by an individual or HUF is on account of personal purpose, no TDS is to be deducted on such consideration.
• Non-Resident Contractor: Payment made to a Non-Resident contractor shall not attract TDS under Section 194C of the Income Tax Act, 1961. However, it shall be governed by provisions of Section 195.

Clarification by CBDT

Circulars

• TDS on payment made for catering services shall be deducted on invoice value, excluding the value of GST (if such value is mentioned separately in the invoice) – Circular No. 23/ 2017.
• However, TDS shall be deducted from the entire invoice value (if the value of GST is not mentioned separately in the invoice) – Circular No. 23/ 2017
• When the food is served in the restaurant in a normal or ordinary course of business, it will not be considered a catering contract or service under Section 194C. – Circular No.: 715/ 1995.

Landmark Judgements for Section 194C (TDS on Catering Services) of the Income Tax Act, 1961

• In the case of CIT Vs Saifee Hospital Trust [2019], the Bombay High Court held that the catering services rendered are not considered technical services under Section 194J but are deducted as TDS for catering services under Section 194C.
• Furthermore, the Supreme Court in Principal Commissioner of Income Tax v. Hakmichand D & Sons [2018] held that where the assessee was given the contract for catering services and license fees was paid on it to IRCTC, Section 194C will not apply.

This is because Section 194C does not cover license fees for catering services.

Illustrations: –

Mr. X was engaged in the catering business and provided such services to Mr. Y for a business conference. The payment received is Rs. 50,000. In this case, what will be the rate of TDS on catering services?

Solution:

The rate and amount of TDS will be 1% and Rs. 500 respectively because the payment is made to an individual and it exceeds the threshold of Rs. 30,000.

Illustration: XYZ Ltd. is providing catering services to IRCTC and the quarterly payment made is Rs. 50,000. So, at what rate, the TDS will be deducted?

Solution: The rate and amount of TDS on catering services will be 2% and Rs. 1,000 respectively because the payment is not made to an individual or HUF. Further, the aggregate amount exceeds the threshold limit of Rs. 1,00,000.

For the Full text of Section 194C of the Income Tax Act, please refer to this link

Explore our Full detailed Article on TDS.

Hence, TDS on catering services is required to be deducted under Section 194C of the Income Tax Act, 1961 at the rate of 1% or 2% (as the case may be) for payments to residents.

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