By CA Surekha Ahuja
Every year, thousands of Indian companies pay for corporate club memberships — business chambers, hotel lounges, golf clubs, industry associations — to strengthen client relationships and give their leadership team a place to meet, network, and entertain. And every year, the same invoice lands on the same finance desk with the same two unanswered questions: should we deduct TDS before paying this, and is this an expense or an asset on our books?
There's no single section of law that answers either question directly — "club membership" doesn't get its own line in the Income-tax Act. Instead, the right answer comes from testing the payment against the general framework. This guide walks through that framework end-to-end, backed by the governing law and case precedent.
First, a common confusion: doesn't every business expense attract TDS?
No.
Deductibility and TDS applicability are two completely separate legal questions, governed by different parts of the Act.
Is the expense deductible while computing taxable income? — governed by Section 37(1), or a specific section under Sections 30–36. The basic test is whether the expenditure is revenue in nature and incurred wholly and exclusively for business.
Was there an obligation to withhold tax before paying it? — governed by Chapter XVII-B, now consolidated under Section 393 of the Income-tax Act, 2025. TDS applies only where the payment falls within a specified statutory category such as salary, interest, contractor payments, professional or technical fees, rent, commission and certain other payments.
The two questions do not automatically track each other. A genuine business expense can be fully deductible without attracting TDS simply because it does not fall within any specified withholding provision.
The only important bridge is Section 40(a)(ia). It can disallow an expenditure where TDS was applicable but the payer failed to comply. Where no TDS provision applies in the first place, there is no withholding default for Section 40(a)(ia) to operate on.
With that distinction clear, here's the actual section-by-section test.
Part 1: Is TDS Applicable?
The first step is jurisdictional: is the club or entity you're paying a resident or non-resident? Payments to non-residents fall under Section 195, with its own DTAA and permanent-establishment analysis. This guide covers the far more common domestic scenario — a resident Indian company paying a resident Indian club or hospitality group.
For domestic payments, TDS obligations sit under what were historically the "194-series" sections of the Income-tax Act, 1961 — now consolidated into a single Section 393 under the Income-tax Act, 2025 (effective 1 April 2026). The obligation doesn't change; only the section number does.
Here's how a membership fee tests against the relevant provisions:
Section 194C — payments to contractors for "work"
A membership fee isn't consideration for a defined piece of work being carried out for you, so this generally doesn't apply.
Section 194J — fees for professional, technical, or consultancy services
This is where most of the genuine ambiguity lives.
If the membership is purely an access privilege — use of a lounge, dining space, or meeting rooms — there's no managerial, technical, or consultancy service being rendered, and 194J doesn't apply.
But if the membership package bundles in identifiable consultancy, training, professional or technical advisory services, that component needs to be examined under Section 194J.
Section 194-I — rent
Doesn't apply in most cases. Rent requires a lease-like right to identifiable land, building or furniture. A non-exclusive privilege to use shared facilities across multiple locations is a different legal character from a tenancy.
Section 194R — benefits or perquisites arising from a business relationship
This provision is narrower in application — relevant mainly where a company provides a membership-type benefit to a non-employee, rather than paying for its own corporate access.
The test that actually matters here isn't the invoice's title — it's what the fee buys.
Read the membership agreement, not just the bill.
Language such as "privilege of using the facilities" or "benefits of membership" generally points towards a pure access right. Language describing a defined service deliverable requires examination under the relevant TDS provision.
If 194J does apply, the applicable rate depends on whether the payment is for professional or technical services, along with the applicable threshold and PAN provisions. TDS should generally be computed excluding GST where GST is separately shown on the invoice.
Part 2: Expense or Capital Asset?
This is where tax treatment and accounting treatment converge.
Under Ind AS 38, an intangible asset can only be capitalised if it satisfies the relevant recognition criteria, including identifiability and control, with expected future economic benefits.
Club memberships typically fail this test — they are often non-transferable, non-saleable and subject to the club's rules and termination provisions. There's no separable asset the company owns; there's a privilege it enjoys.
That points to expensing, not capitalising.
- The initiation/entrance fee should generally be treated as revenue expenditure where it merely secures membership privileges. For accounting purposes, appropriate prepaid expense treatment may be considered where the contractual benefit relates to a future period.
- The annual/renewal fee is a straightforward recurring revenue expense for the period it covers.
- Classify both under Business Promotion, Sales & Marketing, or Staff Welfare, as appropriate — not under Fixed or Intangible Assets.
This isn't just an accounting convention — it is supported by judicial precedent.
The Supreme Court, in CIT v. United Glass Mfg. Co. Ltd. [2012] 28 taxmann.com 429, held that club membership fees incurred for employees and to entertain customers are business expenses deductible under Section 37(1).
The consistent judicial reasoning is that a membership may create a benefit lasting more than a year, but that benefit does not automatically become a capital asset. The real question is whether the company has acquired a capital asset or capital advantage, rather than merely a business facility or privilege.
Part 3: Company's Name vs. a Director's Personal Name — Why It Changes Everything
This is the single most consequential structuring decision, and it's often overlooked.
When the membership is held in the company's name
Where the membership is held in the company's name, with an employee or director merely nominated as the user, the position is substantially cleaner.
The company incurs the expenditure and the membership privilege is available for business purposes. Generally, there is no perquisite merely because an employee or director is nominated as the user, and therefore no salary TDS exposure merely on that account.
The caveat is important: if the membership includes personal-use benefits — a spouse's card, for example — or facilities used for clearly non-business purposes, that specific benefit requires separate examination as a possible perquisite under Section 192.
When the membership is held personally by a director
When the membership is held personally by a director and the company simply funds or reimburses it, the calculus shifts.
The company's deduction is at real risk of disallowance under Section 37(1), since this can look like the company discharging a personal obligation rather than incurring a business cost.
If the director is an employee, the value may become a taxable perquisite under Section 17(2), with salary TDS implications.
If the director is non-executive and not on the payroll, the benefit may require examination under the provisions relating to benefits or perquisites, including Section 194R where applicable.
For significant shareholder-directors, there may also be a deemed-dividend risk under Section 2(22)(e), depending on the facts.
Separately, the arrangement may have related-party transaction, approval and disclosure implications under the Companies Act.
The practical rule is simple:
If the membership is genuinely for corporate use, it is safer to structure it as corporate membership rather than a personal membership paid for by the company.
A Note on GST Input Tax Credit
GST treatment runs on its own track, entirely separate from the income-tax conclusion.
Section 17(5)(b) of the CGST Act restricts input tax credit on club memberships, subject to the statutory provisions and exceptions.
Therefore, companies should not assume that ITC is available merely because the membership is used for business purposes. The precise nature of the membership and the applicability of any statutory exception should be examined before claiming credit.
The position becomes particularly difficult where the membership sits in an individual's personal name rather than the company's name.
The Working Checklist
- Confirm whether the payee is resident (domestic TDS) or non-resident (Section 195).
- Read the membership agreement to see exactly what's being purchased — access, or a bundled service.
- Test against Sections 194C, 194J, 194-I and 194R, and document the conclusion.
- If TDS applies, confirm the applicable rate, threshold and PAN requirements.
- Compute TDS on the value excluding GST where GST is separately shown on the invoice.
- Book the fee as a revenue expense — Business Promotion or Staff Welfare, as appropriate — rather than as a capital asset.
- Confirm whether the membership is in the company's name or an individual's; this changes deductibility, TDS and GST outcomes materially.
- Assess GST input tax credit separately under Section 17(5).
- For high-value memberships, document the business purpose and tax position before payment.
The Bottom Line
A club membership that is purely a privilege of access — held in the company's name and used for genuine business purposes — is generally free of TDS and deductible as revenue expenditure.
The moment a genuine professional or technical service gets bundled into the fee, or the membership is structured in a director's personal name instead of the company's, the tax and withholding analysis can change substantially.
The invoice title never settles the question. What the agreement actually provides, whose name the membership is held in, and how the benefit is actually used — those are what determine the tax treatment.
