TDS on Hotel Room Rent under Section 194C: A Complete Guide: 1 Minute to Master TDS on Hotel Accommodation

Section 194C of the Income Tax Act deals primarily with payments to contractors and sub-contractors, but when it comes to TDS (Tax Deducted at Source) on hotel room rent, there is often confusion regarding the applicable section, rates, and procedures. Let’s explore the nuances of how TDS is handled on hotel room rent under Section 194C, who needs to deduct it, rates, exceptions, and compliance tips.

Understanding Section 194C and Hotel Room Rent

Section 194C mandates any person (other than individuals/HUF not audited under Section 44AB) to deduct TDS when making payment to a contractor for carrying out any work, which includes supply of labor. “Carrying out any work” was traditionally understood as construction, manufacturing, transportation, etc. However, in certain cases, organizations entering into agreements with hotels for providing accommodation may fall within the scope of Section 194C.

When Does TDS Apply on Hotel Room Rent?

TDS under Section 194C is generally not attracted for a one-time or occasional booking of hotel rooms. However, if there is a contract or agreement/regular arrangement between an entity (company, firm, partnership, AOP, etc.) and a hotel for room accommodation, then such payment is treated as “a contract for carrying out work.” In such cases, TDS under 194C is applicable.

1. For a one-off booking: No TDS under 194C.
2. For a regular arrangement (e.g., monthly bulk booking or agreed rates & availability): TDS under 194C applies.

TDS Rates and Threshold

1. TDS is to be deducted @ 1% if payment is made to an individual or HUF and @ 2% in any other case.
2. No TDS is required if the amount credited or paid to a contractor does not exceed Rs 30,000 in a single payment OR Rs 1,00,000 in aggregate during the financial year.

Example Scenario

If a company signs a yearly agreement with a hotel to provide accommodation for its executives at a pre-decided rate, regardless of the number of nights utilized, this will be considered a contract and TDS under 194C must be deducted on payment.

Tips 1:

As a designer, I’ve assisted clients with corporate space planning and hospitality arrangements. It’s important to remember that agreements for corporate accommodation can impact both your company’s tax compliance and negotiation leverage with hotels. Integrating room planner tools in your contract process can also make negotiations and logistical planning more seamless by helping visualize and allocate room usage efficiently.

FAQ

Q: Is TDS applicable on every hotel room booking?

A: No, TDS under section 194C is typically not applicable for occasional or one-off bookings. It only applies when there’s a contract or regular arrangement between the payer and the hotel for room rent/accommodation.

Q: What is the TDS rate on hotel room rent under Section 194C?

A: TDS is deducted at 1% if the payment is made to an individual or HUF and at 2% if made to other entities, subject to the threshold limits prescribed under the section.

Q: What is the threshold for deducting TDS under Section 194C for hotel rent?

A: No TDS is required if the single payment does not exceed Rs 30,000 or the aggregate payments in a financial year don’t exceed Rs 1,00,000.

Q: Is GST considered for calculating the TDS amount on hotel room rent?

A: TDS should be deducted only on the amount paid for services excluding GST, provided GST is shown separately on the invoice.

Q: Who is responsible for deducting TDS on hotel room rent?

A: The person making the payment (other than those specifically excluded, like certain individuals/HUFs) under a contract or arrangement with a hotel is responsible for deducting TDS under Section 194C.