TDS on Payment made to Hotels
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 (Read: Assessee covered under tax audit u/s 44AB). Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment to hotel accommodation directly to the hotel as and when he stays there, the question to tax deduction at source would not normally arise (except where he is covered under section 44AB) since it is the employee or such individual who makes the payment and the company merely reimburse the expenditure.
The meaning of ‘rent’ in section 194-I is wide in its ambit and scope. For this reason, payment made to the hotel for hotel accommodation, whether in the nature of lease or license agreements are covered, so long as such accommodation has been taken on ‘regular basis’. Where earmarked rooms are let out for 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 prevalence 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 enter into for lower tariff rates, are in the nature of rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at a pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to 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, rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provision of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreement.
Hence, according to circular no. 5/2002 dated 30th July, 2002, payments made to hotel for accommodation are liable to get TDS deducted in all cases except rate-contract agreement.