TDS applicability on payment of Hotel Bills

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CA Gaurav Khanna (Querist)
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18 September 2008 The employee visits to a Hotel and makes the payment through the corporate credit card issued to the employee. The company further in accordance with the due date of the corporate credit card makes the payment on the Credit Card. Is the company liable to deduct TDS on this. if yes at what rate. Supposing the amount involved is more than 20000.

SANDEEP AGGARWAL

SANDEEP AGGARWAL (Expert)
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19 September 2008 Hotel rent are covered u/s 194(i) and limit is Rs. 1200000/- for TDS deduction.

Regards,
CA. Sandeep Aggarwal

CA Gaurav Khanna

CA Gaurav Khanna (Querist)
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19 September 2008 The payment is made by the individual who is visiting the hotel, how will he deduct the TDS.

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Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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22 September 2008 Payments for hotel accommodation - Circular No. 715, dated 8-8-1995 has been issued by the Central Board of Direct Taxes to clarify various provisions relating to tax deduction at source under various provisions of the Income-tax Act. Question No. 20 of the aforesaid Circular related to applicability of the provisions of section 194-I in respect of payments made to a hotel for rooms. The relevant question and answer is reproduced below :—

“. . . Q. No. 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?

Ans. : Payments made by persons other than individuals and HUF for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I.” [Emphasis supplied]

In this context, doubts have been raised as to what constitutes “hotel accommodation taken on regular basis” for the purpose.

The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or HUF except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or HUF exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure.

Furthermore, for purposes of section 194-I, the meaning of ‘rent’ has also been considered. “‘Rent’ means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . .” [Emphasis supplied]. The meaning of ‘rent’ in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on ‘regular basis’. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.

However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of rate-contract agreements. A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation ‘taken on regular basis’, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements.—Circular : No. 5/2002, dated 30-7-2002.