Thursday, April 17, 2014

TDS and Service Tax on Dinner Party at Hotel

In case a company wishes to host a dinner for its clients at a hotel, the applicability of TDS and Service Tax provisions on such an expenditure would be as follows (in absence of any written terms or agreement):


In case a company organizes a dinner party at a hotel, it may not be called a “works contract” under Section 194C of the Income Tax Act as it may not be a “catering service contract” but only availing of services of waiters and facilities which are already available with the hotel. The guests go to the hotel and dine; it is a simple contract for sale of goods. Serving food to the customers is part and parcel of the duty of the hotel staff in pursuance of the contract for the provision of food.

However, if the same company arranges a dinner within its own premises (say, on its own lawns), then TDS will have to be deducted under Section 194C as in this case, the company hires hotel staff to manage the service of eatables, etc. at the party. Within the hotel, catering was their job anyway. But on the company premises, they're clearly "carrying out a piece of work" outsourced to them. It is no longer a contract for the mere sale of eatables, notwithstanding that VAT may have been charged in the bill. The TDS will have to be deducted on the entire amount paid to the hoteliers.

Service Tax:

When goods, being food or any other article of human consumption or any drink (whether or not intoxicating) are supplied in any manner as a part of the activity, at a restaurant, service tax is chargeable on 40% of the gross amount.

However, when the same service is in the form of outdoor catering, service tax is chargeable on 60% of the gross amount.

Gross Amount means the sum total of the amount charged and the fair market value of all goods and services supplied in or in relation to the supply of  food or any other article of human consumption or any drink (whether or not intoxicating), whether or not supplied under the same contract or any other contract, after deducting-
(i) the amount charged for such goods or services,  if any; and
(ii)  the value added tax or sales tax, if any, levied thereon.