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Tds on payment for hotel accommodation

CA VAISHNAVI (Finance Officer) (84 Points)

29 April 2013

Dear Friends,

I need some clarification on the following issue. We r engaged in running frequent training programs and we used to accommodate the participants in hotel. Will the payment made for the hotel subject to TDS? If so kindly let me know under what section it will come and wat percent should be deducted. Waiting for your kind reply.

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CA Shree Jain (Chartered Accountant) (1572 Points)
Replied 29 April 2013

No TDS on rate contract hotel deals

MUMBAI: Good news for corporates. Hotel room charges paid by corporate executives would not attract tax deduction at source if such payments are on the basis of a rate contract agreement reached between the hotel and the corporates, the tax authorities have clarified.

Besides corporates, tour operators and travel agents will also benefit.

The Central Board of Direct Taxes recently clarified its stand in a circular meant to resolve the long standing dispute between the tax authorities and corporates on the question of whether payments made by companies on behalf of employees staying in hotels amounts to rent and is thus subject to TDS.

The CBDT held that if the payments are on the basis of a rate contract agreed upon by both parties for lower tariff, such payments do not attract TDS as they are not in the form of a rent.

The rate of TDS payable on rent is 23%. The CBDT circular reads "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 rates contract agreements."

The CBDT clarified that accommodation on the basis of a rate contract cannot be construed as accommodation on a 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.

On the other hand occupancy on a regular basis would attract TDS. For example, if a corporate hires a set of rooms in a hotel for its employees, such payment would certainly attract TDS.

Or any other arrangement for accommodation on a regular basis, or rooms hired for the purpose of running a corporate office, do attract TDS.

The CBDT issued this circular after a recent order by the Andhra High Court, which in effect took the view that all payments by way of room charges are in the nature of rent and would hence attract TDS.

TP Ostwal, senior tax consultant told ET "It is a clarification that has removed the confusion over the issue. The hotel industry and companies will benefit from this clarification".