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TDS on Hotel Accommodation – Section 194I of the Income Tax Act

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

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:

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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