The provisions contained in Section 194-I of the Income Tax Act, 1961 define how one should deduct TDS on rent. Section 194I imposes an obligation for TDS deduction on persons making rental payments to resident Indians exceeding Rs.2,40,000 in a financial year.
Section 194-I was introduced to bring rent under the purview of TDS provisions as rent is a key source of income that was escaping the tax net.
Where a person, except an individual or HUF, is required to make payment for booking hotel accommodation, which is considered as rent to a resident, such person needs to deduct TDS on such payment to the such hotel.
Meaning of hotel accommodation under Section 194I
- As per the circular by Circular No. 715 / 1995 issued by the CBDT, if the hotel accommodation is taken on a regular basis, it would be construed as payment made for rent under Section 194-I.
- Where earmarked rooms are let out for a specified period and at a specified rate, they would be considered to be hotel accommodations and construed as payment made for rent under Section 194-I.
- Cases where there is a legal obligation for a hotel to reserve certain designated rooms under an agreement would be considered hotel accommodation on a regular basis during the operation of the agreement and will be construed as payment made for rent under Section 194-I.
What is exempted from the deduction of TDS for hotel accommodation under Section 194I?
Tax at source (TDS) won’t be deducted by the payer in the list mentioned below:
- Individuals as well as HUFs: This above provision won’t apply to individuals or HUFs. However, it would apply in case the turnover, total sales or gross receipts exceeds:
– In the case of business – INR 1 crore, or
– In the case of the profession – INR 50 lakhs
Note – that such income should have been earned during the financial year immediately preceding the financial year in which payment is made to the hotel. - Business Trust: No tax at source (TDS) would be deducted where Income via rent is credited or paid to the business trust, being a real estate investment trust with respect to any real estate asset, under Section 10 (23FCA) owned directly by such business trust.
- Where the aggregate of amounts credited or paid during the financial year by the payer doesn’t exceed INR 2,40,000.
- Contracts to provide specified types of hotel rooms at pre-determined rates are merely like rate contracts, and it cannot be construed as accommodation taken on a regular basis hence it is outside the purview of Section 194I.
Example 1.
ABC Ltd. booked hotel rooms for movie shooting at different locations in Delhi for their artists and the amount paid by the company is INR 2,70,000. What is the amount of TDS that the company should deduct before making such a payment to the hotel?
Answer: The rate and amount of TDS on such hotel accommodation would be 10% of INR 2,70,000 and the amount of TDS subsequently will be INR 27,000 as it exceeds the threshold limit of INR 2,40,000.
Example 2.
Mr Ganesh, a director at Max Corporation, booked a hotel room for his team of executives at a pre-determined rate. Whether TDS needs to be deducted and if yes at what rate?
Answer: This payment by Mr Ganesh isn’t covered under Section 194I as it is a Rate-Contract Agreement. Hence, no TDS needs to be deducted under this Section.
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