Introduction – TDS on Hotel accommodation – Section 194I of Income Tax Act
In cases where hotel accommodation is taken on a regular basis. For such situations, the Income Tax Act provides for the deduction of TDS on payments made for Hotel accommodation under Section 194I of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) at the rate of 2% or, 10% for payments exceeding Rs. 2,40,000, during a given financial year. Let’s understand this concept in detail.
What is ‘hotel accommodation’ for the purposes of Section 194I of the Income Tax Act, 1961?
- Meaning of “Hotel Accommodation” when taken on a ‘”regular basis”
Though, Section 194-I provides for the deduction of TDS on ‘rent’ but as per the circular by CBDT, if the accommodation is taken in a hotel on a regular basis, it will be considered as payment made towards ‘rent’ under Section 194-I of the Act [Circular No. 715 / 1995]. - Earmarked Hotel Rooms to be considered as have been booked for ‘hotel accommodation on a regular basis’ :
Where earmarked room is let out for a specified rate and specified period, they would be construed to be accommodation made available to the payer on a “regular basis”. - Hotel Rooms, not earmarked but legal obligation by the hotel to reserve such rooms will be considered as ‘hotel accommodation on a regular basis’:
Similarly would be the case, where a room or a set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the operation of the agreement. - Hotel accommodation booked on Rate-Contract Agreement, however, is not to be considered as hotel accommodation to have been booked on a regular basis:
However, contracts for providing specified types of hotel rooms at pre-determined rates are merely in the nature of the rate contract, and it cannot be said to be accommodation taken on a ‘regular basis’. Therefore, it would be outside the purview of Section 194I of the Income Tax Act.
Note: This is because the occupancy would be optional or casual and the hotel is not obligated to provide the rooms.
Applicability of TDS provisions on Hotel Accommodation under Section 194I of the Income Tax Act, 1961
Where a person, except an individual or Hindu Undivided Family, is responsible for payment for booking hotel accommodation (which shall be considered in the nature of rent) to a resident, such person, therefore, shall be liable to deduct TDS on such payment to the hotel.
What is to be considered as “rent” for the application of TDS under Section 194I on Hotel Accommodation?
Rent is any payment under any lease, sub-lease, tenancy, or any other agreement or any other arrangement for utilizing, either separately or together, any of the following-
1. Land; or
2. Building which includes factory building; or
3. Land appurtenant to a building which includes a factory building; or
4. Machinery; or
5. Plant; or
6. Equipment; or
7. Furniture; or
8. Fittings,
Note: However, it is not essential that the deductee owns any or all of the places mentioned above.
Rate of deduction of TDS on payment made towards Hotel Accommodation under Section 194I of the Income Tax Act, 1961
The rate at which TDS is to be deducted on any payment made for hotel accommodation by any person, to a Resident–
1. It will be 2% for using:
– Any machinery, or
– Plant, or
– Equipment; and
2. It will be 10% for using:
– Land or building which includes factory buildings, or
– Land appurtenant to a building which includes a factory building or
– Furniture or
– Fittings.
Time of deduction of TDS on payment made for Hotel Accommodation under Section 194I of the Income Tax Act, 1961
TDS is required to be deducted in case of payment made for hotel accommodation when –
- Such sum is credited to the account of the payee; or
- Payment is made to the deductee in cash or by way of issue of cheque/ draft/ any other mode whichever event takes place earlier.
Deemed application of provisions of TDS on payment made for Hotel Accommodation under Section 194I of the Income Tax Act, 1961
In case where 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 deductee, it will be deemed to have been credited to the account of the deductee and the provisions for deduction of TDS on payment made for such hotel accommodation will apply.
Threshold Limit for deduction of TDS on Hotel Accommodation under Section 194I of the Income Tax Act, 1961
- The threshold limit for deduction of TDS under Section 194I is Rs. 2,40,000. i.e., if the aggregate amount of payments made by the for booking hotel accommodation does not exceed Rs. 2,40,000, TDS under Section 194I shall not be deducted.
- If it exceeds the threshold limit, then TDS will be deducted at the rate of 2% or 10%, as the case may be under Section 194I of the Act.
Exemption from Deduction of TDS for Hotel Accommodation under Section 194I of the Income Tax Act, 1961
TDS shall not be deducted by the payer in the following cases:
1. Individual and HUFs: It will not apply to an individual or a Hindu Undivided Family or HUF. But it will apply if the total sales, gross receipts, or turnover from the business or profession exceeds:
– In case of business – Rs. 1 crore, or
– In case of profession – Rs. 50 lakhs
Such income must have been earned during the FY immediately preceding the FY in which such payment is made to the hotel is made
2. Business Trust: No TDS will be deducted where Income by way of rent is credited/ paid to a business trust, being a real estate investment trust, in respect of any real estate asset, under Section 10 (23FCA) that is owned directly by such business trust.
3. Sum doesn’t exceed Rs. 2,40,000: In case the amount or aggregate of amounts credited/ paid during the FY by the payer does not exceed Rs. 2,40,000, no TDS will be deducted.
Clarification by CBDT
Circular
• When the payments are made for hotel accommodation, they will be considered as payments made towards rent as per Section 194I. – [Circular No. 715 / 1995].
• Where corporate employers, travel agents, or tour operators arrange for hotel rooms on standard tariff for customers, guests, or executives, these are in the nature of Rate-Contract Agreements. – [Circular No.: 5/2002]
Landmark Judgements for Section 194I (TDS on Hotel Accommodation) of the Income Tax Act, 1961
•Dadiba Kali Pundole v. ACIT [2020], ITAT- Since, the accommodation of the club was on a casual basis when a foreign consultant came and as it was not earmarked, it will not be covered under Section 194I.
• In the case of Apeejay Surrendera Park Hotels Ltd. v. Union of India [2016], the High Court held that where amenities and facilities of a hotel are utilized by the payer, it will fall under Section 194I as a deduction of TDS on hotel accommodation.
Illustration
XYZ Ltd. has booked hotel rooms for the shooting of a film at different locations in Jaipur for the film artists. Hence, at what rate, the TDS will be deducted? [Let us assume that the amount paid is Rs. 2,60,000]
Solution: The rate and amount of TDS on hotel accommodation will be 10% and Rs. 26,000 respectively as it exceeds the threshold limit (i.e. Rs. 2,40,000).
Illustration
Mr. Y, a manager of Rupa Publishers, has booked a hotel room for the executives working in his team at a pre-determined rate. Therefore, at what rate, TDS will be deducted?
Solution: The payment will not be covered under Section 194I because it is a Rate-Contract Agreement. Therefore, no TDS will be deducted under Section 194I of the Act.
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Read more about the TDS Sections
- Section 192 of Income tax act
- Section 193 of Income tax act
- Section 194 of Income tax act
- Section 194B of Income tax act
- Section 194C of Income tax act
- Section194EE of Income tax act
- Section 194H of Income tax act
- Section 194I of Income tax act
- Section 194IA of Income tax act
- Section 194 J of Income tax act
- Section 194K of Income tax act
- Section 194LD of Income tax act
- Section 194LBB of Income tax act
- Section 194M of Income tax act
- Section 194N of Income tax act
- Section 194O of Income tax act
- Section 194Q of Income tax act
- Section 194R of Income tax act
