By CA Surekha Ahuja
For corporates and tax professionals, payments to hotels and resorts for staff stays and food arrangements pose significant compliance risk in FY 2025–26 due to the amendments in Section 194-I under the Finance Act, 2025. With the TDS threshold for rent reduced to ₹50,000/month, even a single resort stay can now attract tax deduction. Separately billed catering or banquet services may attract TDS under Section 194C.
This blog post presents the updated law, circulars, case law, and every practical permutation — from casual overnight stays to multi-day conferences with full service packages — so you can avoid defaults and structure contracts compliantly.
Section 194-I: TDS on Rent for Use of Building or Accommodation
As per Explanation (i) to Section 194-I of the Income-tax Act, “rent” includes payments under any agreement for the use of land, building, furniture or fittings, whether leased, licensed, or arranged otherwise.
Key Features Post-Finance Act, 2025
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Monthly threshold: ₹50,000 per month (not per annum)
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Deduction rate: 10% on room/accommodation/facility use
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Applicable to: All persons other than individuals/HUFs unless subject to tax audit u/s 44AB
Result: Even a single room booking for ₹60,000 now attracts TDS at 10%.
Section 194C: TDS on Work Contracts Including Catering
Statutory Language
As per Explanation (iii) to Section 194C, “work” includes "catering," i.e., providing food or beverages under a service arrangement.
Key Features
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Deduction rate: 2% (for companies/firms) or 1% (if contractor is an individual/HUF)
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Thresholds:
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₹30,000 per contract
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₹1,00,000 aggregate in a financial year
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Applies to food supplied under a service contract, not bundled room meals
CBDT Circular Guidance
Circular No. 5/2002:
TDS under 194-I not applicable to hotel bookings made on a casual basis, without any earmarked arrangement.
Circular No. 715/1995:
If bills are not split, the entire payment becomes liable under 194-I (for rooms) or 194C (for catering), depending on the dominant nature of the service.
All Possible Booking Scenarios and Their TDS Implications
| Scenario No. | Situation Description | Room Rent ₹ | Food ₹ | TDS under 194-I | TDS under 194C | Remarks |
|---|---|---|---|---|---|---|
| 1 | Ad hoc one-day resort stay for team, total bill ₹48,000 | 48,000 | Included | No | No | Below monthly threshold and casual – exempt under Circular 5/2002 |
| 2 | One-time staff offsite at resort, total bill ₹60,000 including meals (composite invoice) | 60,000 | Included | Yes | No | Threshold crossed; no break-up = TDS @10% on full amount under Section 194-I |
| 3 | Resort stay ₹45,000, food separately billed at ₹35,000 | 45,000 | 35,000 | No | Yes | Room rent below threshold; food contract > ₹30,000 = TDS @2% under Section 194C |
| 4 | Monthly stay arrangement for sales staff at ₹48,000/month for 12 months | 48,000 | Included | Yes | No | Monthly rent below limit, but regular/earmarked rooms attract TDS as per Circular 5/2002 |
| 5 | Long-term contract with resort to provide 3 rooms monthly @ ₹40,000/room | 1,20,000 | Excluded | Yes | No | Earmarked contract with fixed rooms — TDS @10% on entire rent |
| 6 | Company picnic with event planner – room ₹35,000, catering ₹55,000 billed separately | 35,000 | 55,000 | No | Yes | Food service exceeds ₹30k — 194C applies; room rent exempt as below monthly threshold |
| 7 | Conference at resort for ₹1,80,000 – composite invoice for rooms, AV, food, decor | 1,80,000 | Included | Yes | Possibly | Split billing needed. If not split, full TDS under 194-I |
| 8 | Vendor bills ₹60,000 solely for banquet service (no room stay) | 0 | 60,000 | No | Yes | Pure catering – TDS under 194C applies at 2% |
| 9 | Booking via travel agency; agency pays resort and raises single consolidated invoice of ₹70,000 | Included | Included | Yes | Possibly | TDS on gross amount under Section 194H (commission), 194-I if split known |
| 10 | Individual/HUF not under audit pays ₹80,000 to resort for staff retreat | 80,000 | Included | No | No | TDS provisions not applicable unless tax audit applicable |
| 11 | Government entity books resort for ₹1,00,000 | 1,00,000 | Included | Yes | No | Government bodies are liable to deduct TDS unless specifically exempt |
Common Mistakes and How to Avoid Them
| Mistake | Consequence | Preventive Action |
|---|---|---|
| Assuming composite invoices don’t attract TDS | Full amount becomes subject to TDS @10% | Ask for separate invoices for rooms and catering |
| Booking rooms monthly but below ₹50k without checking “earmarking” | TDS applies due to regularity, despite value | Avoid fixed or recurring room tie-ups |
| Not deducting TDS on banquet-only invoices > ₹30k | Treated as default under Section 194C | Apply 2% TDS on catering bills |
| Ignoring TDS for individuals/HUFs under tax audit | Treated as default with interest/penalty | Check audit applicability each year |
| Deducting TDS under wrong section (e.g., applying 194C on full bill) | Short deduction; liable under Section 201 | Match section based on nature and breakup of the invoice |
Practical Checklist for TDS Compliance on Resort/Hotel Payments
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Review Total Room Charges: If monthly payment to a single resort exceeds ₹50,000, Section 194-I applies.
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Separate Food & Room: Request a split invoice to isolate TDS under Section 194-I (room) and Section 194C (food).
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Avoid Blanket Agreements: Steer clear of monthly tie-ups or room blocks which can nullify the casual exemption of Circular 5/2002.
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Check Payer Category: Individuals and HUFs must deduct TDS only if covered under tax audit.
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Verify Vendor PAN and Residency: Section 194-I applies only if payee is a resident. For non-residents, consider Section 195.
Frequently Asked Questions (FAQs)
Q1. Is TDS applicable on a single resort bill of ₹58,000 which includes stay and buffet meals?
Yes. TDS under Section 194-I applies at 10% since the monthly payment exceeds ₹50,000 and the bill is not split.
Q2. What if the same ₹58,000 is billed as ₹40,000 for room and ₹18,000 for food?
Only ₹40,000 for room is below threshold, so no TDS under 194-I. Since food is ₹18,000 (below ₹30,000), no TDS under 194C.
Q3. We use the same hotel every month but pay only ₹45,000/month. Is TDS applicable?
Yes. Despite being below ₹50,000, the regular and earmarked nature of the booking removes Circular 5/2002 protection.
Q4. If a hotel includes stage, decoration, food, and room in one bill for ₹1.5 lakh, how should TDS be applied?
If split:
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Room: TDS @10% under Section 194-I
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Catering: TDS @2% under Section 194C
If not split: TDS @10% on entire bill under Section 194-I as per Circular 715.
Q5. Can TDS be avoided by routing bookings through travel agencies?
No. The substance over form principle applies. If the travel agency is merely a pass-through and you're paying the hotel indirectly, TDS still applies on the underlying service provider’s invoice.
The revised TDS landscape under Section 194-I from FY 2025–26 requires businesses to be significantly more cautious while handling hotel and resort payments. A single misclassification, incorrect section usage, or assumption that casual booking exempts TDS could result in interest under Section 201(1A), penalty under Section 271C, and expense disallowance under Section 40(a)(ia).
Compliance is not just about deduction—it is about correct deduction.
Action Points for FY 2025–26:
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Always check the monthly limit of ₹50,000, not annual.
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Split invoices carefully and document ad-hoc nature of bookings.
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Apply 194C strictly to catering and decor contracts.
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Maintain emails, bookings, and vendor declarations to support your position.
