tds on travel agency services

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Section 194H TDS on Standard & Supplementary commission to travel agents

Supreme Court Changes Tax Relationship Between Airlines And Their Agents

Case Details : Singapore Airlines Ltd. Vs C.I.T (Supreme Court of India); Civil Appeal No. 6964¬6965 of 2015; Dated: 14/11/2022

Section 194H- The provision requires deduction of tax at source (“TDS”) at 10% plus surcharge from payments falling under the definition of “Commission” or “Brokerage” under the Section.

The Explanation appended to Section 194H defines the expression “commission or brokerage”. It is an inclusive definition and includes therein any payment received or receivable, directly or indirectly by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to assets, valuable Article or thing not being securities.

Facts of the case

1. Travel agents are receiving commission in 2 ways.

i. Standard Commission- 7% commission is paid to travel agent for its services as standard commission based on the price bar set by the IATA (International Air Transport Association).

ii. Supplementary Commission – Additional Amount charged by the travel agent on the net fare is retained by the agent as its own income.

2. The airlines have no control over the actual fare at which the travel agent would sell the tickets. While the ceiling price could not be breached, the agents would be at liberty to set a price lower than the base fare fixed by the IATA, but still higher than the net fare demanded by the airlines itself. Hence the additional amount that the travel agent charged over and above the net fare was quoted by the airlines would be retained by the agent as its own income.

3. Illustration:-

4. With the Introduction of Section 194H Standard Commission directly falls under the ambit of section 194H.

5. the dispute between the Assessee airlines and the Revenue in this case lies in the characterization of the income earned by the agent by way of Supplementary Commission i.e. would be subject to TDS requirements under Section 194H.

Assessee Submitted

• Supplementary commission falls outside the ambit of the principal- agent relationship.
• Supplementary commission goes from the hands of the consumer and into the pockets of the travel agents without any intervention from the assessees and it does not fall under the definition of commission
• They further pointed out that the travel agent acts on its own volition in setting the Actual Fare for which the flight tickets are sold and as a symptom of this, the airline itself has no knowledge regarding how much supplementary commission it has drawn for itself.

Supreme Court Held

• The Supreme Court held that the supplementary commission is an independent transaction and falls under the principal –agent relationship by applying a three-part test: Firstly , Whether the title on tickets passed from airlines to travel agents, Secondly , Whether the sale of tickets was done at the behest of airlines or not Thirdly , Whether the liability of a breach falls on the airline or agent.
• The Supreme court pointed out that flight tickets were sold by the travel agents on behalf of the airlines, the title continued with the airlines, and they indemnified the travel agents for any breach of service.
• The court further noted that the travel agents are providing “agency” services on behalf of the airlines, which are also liable for TDS on the supplementary commission.
• Section 194H does not distinguish between direct and indirect payments as explanation to section 194 H clearly mentions that includes therein any payment received or receivable, directly or indirectly by a person acting on behalf of another person for services rendered
• The lack of control that the airlines have over the actual fare charged by the travel agents over and above the net fare, cannot form the legal basis for the assessees to avoid their liability

Final Decision

• The ambit of a contract of agency and its resultant effect on the classification of the difference between the Actual Fare and Net Fare as being a “Commission” liable to deduction of TDS.
• The ruling effectively overrules the law laid down by the Bombay high court in the Qatar Airways case and extends the “agency” relationship between airlines and agents until the final sale is made to the passenger.
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Tds on travel agent

Yash jagati (CA ) (86 Points)

Recently, our company has appointed a travel agent for booking of all the hotel stay requirement of company's employee, when they go out of city for office work. Agent raises a invoice on a monthly basis for all the booking done by him. However in his invoices, he doesn't show his service charges separately. For 1st & 2nd invoice, we have deducted TDS @ 194C on whole amount of invoice. Is this correct approach?

Please tell me tds will be attracted for such payment & under which section?

 12 Replies

Karthik.V.Kulkarni (Chartered Accountant) (594 Points) --> Replied 26 February 2016

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Sunil (CA) (185 Points) --> Replied 26 February 2016

As the travel agent is giving bill without mentioning his service charges, it'll be in the nature of contract and Section 194C will be applicable. If he is giving the service charges seperately, the Section 194H will apply on the Service Charges. The problem the travel agent may face in future is related to Service Tax as he may end up in paying service tax on whole amount.

vipin patole (Self Employed) (72 Points) --> Replied 27 February 2016

  Travel agent simply arranges tickets for you on the basis of COMMISSION. 

And the commission a very specific word has been used under section 194H hence TDS should be deducted u/s 194H.

However in your case you have made a contract with agent and payment of such contract is made on monthly basis which give your arrangement a specific nature i.e. contract of work and when it is contract of work then you will have to deduct tax u/s 194c.

Mere invoicing will not change nature of recipts or contract.  

Yash jagati (CA ) (86 Points) --> Replied 27 February 2016

It will not be covered under 194H, as we have three year contract with agent.....However problem is agent doesn't claim it as a reimbursement i.e. he attach bill raised by him for each hotel booking & here we don't know what is the rate hotel & agent agreed between them.

You have to deduct tax u/s 194c on total amount of the invoice.

And the contract is principal to principal basis then why would he claim it as reimbursement.

Also in ACC Ltd Vs CIT (1993)201 ITR 435 (S.C.) it is held that the deductor does'nt required to segregate the income element from gross amount.

So you have to deduct tax u/s 194c on gross amount.

vaibhav (student) (253 Points) --> Replied 29 February 2016

Niraj Jain (CA Business) (22 Points) --> Replied 31 May 2017

Payments to airlines/travel agents - The provisions of section 194C do not apply to the payments made to the airlines or the travel agents for purchase of tickets for air travel of individuals. The provisions shall however apply when payments are made for chartering an aircraft for carriage of passengers or goods. This clarification will apply mutatis mutan­dis to the tickets for travel of individual by any other mode of transport also—Circular : No. 713, dated 2-8-1995.

The payments made to a travel agent or an airline for purchase of a ticket for travel would not be subjected to tax deduction at source as the privity of the contract is between the individual passenger and the airline/travel agent, notwithstanding the fact that the payment is made by an entity mentioned in section 194C(1). The provisions of section 194C shall however apply when a plane or a bus or any other mode of transport is chartered by one of the entities mentioned in section 194C—Circular : No. 715, dated 8-8-1995.  

ankit goyal (Student CA Final ) (23 Points) --> Replied 23 April 2018

1. whether tds is duducted on invoice raise by travesl agency.??

even if there is no contract made with travel agency or /and the invoice raised by agency is for composite amount.(as we dont knw thw amount of commission)

2. the proceesing charges charged by same travel agency on same bill is is liable foe deducton od TDS ???

Pls reply as soon as possible.

ESG Airtravel (2 Points) --> Replied 23 September 2019

Hi Everyone We have hired a Air Travel Agency for our section and they do not charge any Service Tax for any of the ticket booked. Is TDS applicable on the same.

debora M (BUSINESS DEVELOPMENT MANAGER)   (1697 Points) --> Replied 26 September 2019

So you have to deduct tax u/s 194c on gross amount.  

ankit kanojia (2 Points) --> Replied 21 August 2022

I am a Travel Agent, we booked flight ticket, hotel booking and transportation booking in a year for a our corporate customer (NGO) total yearly transaction 10 lakhs but in that our commission is only 20,000/- now they saying they will deduct TDS on total 10 lakhs 2%, kindly adv. Is it correct ??? 

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TDS filing for payments to travel agents

Travel agents play a pivotal role in the tourism industry. The services they provide are not only beneficial for travelers but also contribute significantly to the economy . However, like all businesses, travel agencies are also subject to certain tax regulations. One such tax-related aspect that directly affects travel agents is Tax Deducted at Source (TDS). In this article, we will delve into the intricacies of TDS filing for payments to travel agents.

1. Understanding TDS

TDS or Tax Deducted at Source is a means of collecting income tax in India, under the Indian Income Tax Act of 1961. Any payment covered under these provisions shall be paid after deducting a prescribed percentage. It is managed by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue managed by the Indian Revenue Service (IRS).

2. TDS on Payments to Travel Agents

As per the provisions of the Income Tax Act, any individual or HUF (Hindu Undivided Family) who has hired a travel agent for planning a trip has to deduct TDS on the payments made to the travel agent. This TDS has to be deducted at the time of credit of such sum to the account of the travel agent or at the time of payment, whichever is earlier.

3. Rate of TDS

The TDS rate for payments to travel agents is fixed at 1% for individual taxpayers and HUFs. However, if the travel agent does not provide their PAN, the TDS rate can go as high as 20%. Businesses and companies, on the other hand, need to deduct TDS at the rate of 2% on the payments made to travel agents.

4. Filing TDS Returns

TDS returns are filed quarterly in India. The person deducting the TDS (known as the deductor) has to fill in details like the PAN of the deductees, amount of tax paid, TDS Challan information, etc.

5. TDS Certificates

After depositing the TDS with the government, the deductor is required to issue a TDS certificate to the deductee (the travel agent, in this case). This certificate is proof that TDS has been deducted and deposited with the authorities on behalf of the deductee.

While TDS on payments to travel agents might seem complex, it is crucial for maintaining transparency and ensuring tax compliance. By understanding the provisions of the Income Tax Act related to TDS , both travel agents and their clients can avoid potential tax-related complications and contribute responsibly towards the nation’s economy.

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Tds on payment to travel agent for air line tickets.

• Central government
• state govt or Local authority
• Cent or State Corp. covered estb. under Cent./state act
• Any co-operative society
• Any company
• Any authority constituted In India under or b the law for town planning and other specific work as defined
• any society
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• any HUF?individual if turnover exceeding 40lacs or profession receipt exceeds 10lakh in immediate preceding year
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• Resident contractor
• payment to subcontractor by resident contractor
• contract between payer and payee for "carrying out any work"
• Including supply of labour for carrying out any work.
• Travel agent is working for commission
• Travel agent work as agent between airline company and passenger
• Travel agent either retain commission and transfer balance money to airline company or transfer full amount and get commission from airline.
• section provides for deduction of tax at source on any income by way of commission or brokerage by the payer to payee
• The meaning of payer here is in my opinion is principle and payee agent
• while purchasing the air ticket the payer is airline company and payee is travel agent and person who is purchasing ticket is not payer as he is not paying any commission as such to the airline ticket
• so u/s 194 H in my opinion ,airline company is liable to deduct tax from the travel agent as they falls under the definition of payer and paying commission to the agent.
• circular no 619 dated 04.12.1991,para no -6(this relevant because the section 194H has been reintroduced again in 2001 but existed earlier also)says the following                                                                                                                " 6. A question may raise whether there would be deduction of tax at source under section 194H where commission or brokerage is retained by the consignee/agent and not remitted to the consignor/principal while remitting the sale consideration. It may be clarified that since the retention of commission by the consignee/agent amounts to constructive payment of the same to him by the consignor/principal, deduction of tax at source is required to be made from the amount of commission. Therefore, the consignor/principal will have to deposit the tax deductible on the amount of commission income to the credit of the Central Government....................."
• so even the travel agent used to retain their commission from gross payment its airline responsibility to deduct and deposit  tds from the commission

Read More about

Hi, Can you please help me out!! My situation: 1. Client: public limited 2. Tour agent is booking ticket on behalf of our client and charging management fees from our client. 3. The management fees is in nature of commission; it varies with change in ticket amount. 4. The management fees is separately charged and shown in invoice over the ticket charges. Now do my client need to deduct tds on this amount under section 194H or 194H?

No tax should be deducted u/s 194C on payment made to travel agent/airline for booking of tickets, If he charging you GST then same is not aplicable

No tax should be deducted u/s 194C on payment made to travel agent/airline for booking of tickets

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TDS at 5% on foreign tour packages, remittances abroad

The Budget 2020-21 has mandated a 5 per cent tax collection at source for remittances over Rs 7 lakh.

Listen to Story

Money flowing out of India is being taxed with tax deduction at source added on services like foreign tour packages and remittances as the outgoing funds flow is sought to being taxed.

Mohandas Pai, Chairman, Aarin Capital has criticised the TDS on foreign remittances. He said: "This is very wrong; Why is there a Tax on our own tax paid money when we remit? Where is ease of living?."

Directionally, it looks like that money flowing out of India is being taxed in the form of remittances or travel. Some people have said that they will make the remittances for education by March 31 as the provision kicks in from April 1.

A new TDS provision has been introduced on foreign remittance. Authorized foreign exchange dealer receiving an amount of Rs 7 lakh or more in a financial year for remittance out of India under the LRS scheme of the RBI shall collect TCS (tax at source) of 5 per cent from the buyer, being a person remitting such amounts out of India. In the case of non PAN/Aadhar cases the rate is 10 per cent.

LRS is used for sending money for children studying abroad, buying property abroad and buying stocks listed in exchanges abroad. The LRS is limited to $250,000 per year per person. ON sending more than Rs 7 lakh year, 5 per cent of that amount will be deducted by the FX dealer and paid as TCS to the Income tax department.

A TDS provision has been introduced on tour packages also. The seller of overseas tour packages shall collect TCS of 5 per cent from the buyer.

The provision will not apply in case the operator is liable to deduct tax at source under any other provision of the act and the amount has been deducted. It will also not apply if the buyer is the government or any another person notified by the government

There is no lower limit on this provision. Travel operators are cribbing that this will hurt their business. Published By: Koustav Das Published On: Feb 4, 2020 --- ENDS ---

Home » Blog » Sec. 194H TDS applicable on additional sum charged by agents over & above net fare of air tickets: SC

Sec. 194H TDS applicable on additional sum charged by agents over & above net fare of air tickets: SC

• Blog | News | Income Tax |
• Last Updated on 17 November, 2022

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Judiciary and Counsel Details

• Surya Kant & M. M. Sundresh , JJ.

Facts of the Case

Assessee-company engaged in the business of air transport services. The business mechanism of the assessee involves booking tickets through travel agents. The base fare for air tickets was set by International Air Transport Association (IATA). However, the airlines may sell their tickets for a net fare lower than the Base Fare, but not higher.

Travel agents act on behalf of airlines to market and sell tickets and they are entitled to a commission on the basic fare of the ticket fixed by the IATA.

Further, airlines have no control over the actual fare at which the agents sell tickets. The agents are at liberty to set a price lower than the Base Fare fixed by IATA but still higher than the Net Fare demanded by the airline itself.

The additional amount charged by travel agents over and above the Net Fare quoted by airlines was retained by the agents as their own income.

The issue before the Supreme Court was:

“Whether the amount retained by the agents, over and above the Net Fare of air tickets were to be treated as commission for deduction of tax at source under section 194H?”

Supreme Court Held

The Supreme Court of India held that there is a distinction between a contract of agency and a contract of sale. A contract of sale is executed where the title of the goods is transferred by the seller to the buyer.

As per the agreement between the airline and the agent, the agent would sell the ticket as per the directions of the airline and in case of any loss incurred by the agent, he would be indemnified by the airline.

There was no contract of sale between the assessee and the travel agent. The airline retains title over the travel tickets and is responsible for the actual services provided to the final consumer.

Further, as per the agreement, “all monies” collected by the agents on the sale of air tickets will be held by them in a fiduciary capacity. Accordingly, there was a contract of agency and not a contract of sale.

Further, the arrangement between the purchaser of the ticket and the agent is merely a part of the agency agreement and not a separate agreement. The extra benefit gained by the agent on the sale of tickets is due to the agency agreement entered with the airline. Thus, these amounts were incidental to the transaction by which the air tickets were sold on behalf of airlines and was for the benefit of agents. Such incidental benefit must come under the ambit of the principal-agent relationship.

The commission under section 194H includes any payment received directly or indirectly by the agent on the behalf of the principal. It does not distinguish the payment based on the source of such receipt.

Therefore, the amount retained by the agents on sale of air tickets was a supplementary commission, liable for deduction of tax at source, under section 194H.

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TDS on Clearing & Forwarding Agents Payment

If anyone has any kind of Doubt Regarding TDS on Agency Service Charges (Charges of CHA Agents like Prime Forwarders, Unique Speditorer Pvt. Ltd.  For Import or Exports) is fall within one type of Commission and It should be deduced tax u/s 194H & not 194C then here is the clarification.

Section 194H “Commission or Brokerage” specifies that

• any payment received or receivable, directly or indirectly by a person acting on behalf of another person for service rendered (not being professional services)
• for any services in the course of buying or selling of goods
• in relation to any transactions relating to any assets, valuable article or things, other than securities

But we pay to Clearing and Forwarding Agent for Carriage of Goods and not Commission for Buying or Selling of goods. Carriage of Goods means One type of Release Goods from Custom Authority and Sent to the Goods at Our Premises So Question of Commission or Brokerage cannot be raised thus Section 194H may not be applicable.

Related Topic: Section 194C – TDS on payment to contractor or subcontractor

As per Circular No. 715 Dated 08-08-1995, Any Payments Made to Clearing and Forwarding Agents for Carriage of Goods shall be subjected to deduction of tax at source under Section 194C

Section 194J  – TDS on Fees for Professional or Technical Services

The activities carried out by Clearing and Forwarding Agent (C&F Agent) form one Composite “Work”, and Any Payments to such agents will attract deduction of tax at source only under section 194C of the Act. It was held that such payments could not be treated as fees for professional or technical services and subjected to tax deduction at source under section 194J, since the nature of the services were in pari materia with the nature of services as contemplated in section 194C – Glaxo Smithkline Consumer Healthcare Ltd. Vs. ITO (2007) 12 SOT 221 (Delhi – Trib.)

Related Topic: Section 194I – TDS on Rent under income Tax

Related Topic: Section 194J – TDS on Professional or Technical Fees

Section 194I – TDS on Rent

The activities carried out by a Clearing and Forwarding Agent form one composite “work”, and hence payments to such an agent will attract deduction of tax at source only under section 194C of the Act, The mere fact that an element of storage is involved in the activities cannot be the basis to treat any portion of the payment as “rent” and to direct deduction of tax at source under section 194I. The words “any other agreement or arrangement” in the definition of “rent” have to be read ejusdem generis with the preceding expressions, viz., lease, sub lease or tenancy. If so read, even the other agreement or arrangement should also be of the same nature as that of lease, sub lease or tenancy. It could not also be said that the dominant purpose of the agreement in the case of a clearing and forwarding agent is only warehousing – Eli Lilly & Co. (India) (P.) Ltd. Vs. Deputy CIT (2006) 99 TTJ (Delhi – Trib.) 461. Payment made to C&F Agents would be covered under section 194C, and cannot be brought under section 194I merely because the agent temporarily stored the goods during the inevitable time-gap between the receipt of goods and their onward despatch – National Panasonic India (P.) Ltd Vs Dy. CIT (2005) 3 SOT 16 (Delhi – Trib.)

Related Topic: GST: Guide on Reimbursement and Disbursement of Expenses

Best Regards

CA Sukrit Udani & CA Ankur Mehta

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Home » TDS » TDS on Hotel accommodation – Section 194I of Income Tax Act

TDS on Hotel accommodation – Section 194I of Income Tax Act

Introduction – tds on hotel accommodation – section 194i of income tax act.

In cases where hotel accommodation is taken on a regular basis. For such situations, the Income Tax Act provides for the deduction of TDS on payments made for Hotel accommodation under Section 194I of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) at the rate of 2% or, 10% for payments exceeding Rs. 2,40,000, during a given financial year. Let’s understand this concept in detail.

What is ‘hotel accommodation’ for the purposes of Section 194I of the Income Tax Act, 1961?

• Meaning of “Hotel Accommodation” when taken on a ‘”regular basis” Though, Section 194-I provides for the deduction of TDS on ‘rent’ but as per the circular by CBDT, if the accommodation is taken in a hotel on a regular basis, it will be considered as payment made towards ‘rent’ under Section 194-I of the Act [Circular No. 715 / 1995].
• Earmarked Hotel Rooms to be considered as have been booked for ‘hotel accommodation on a regular basis’ : Where earmarked room is let out for a specified rate and specified period, they would be construed to be accommodation made available to the payer on a “regular basis”.
• Hotel Rooms, not earmarked but legal obligation by the hotel to reserve such rooms will be considered as ‘hotel accommodation on a regular basis’: Similarly would be the case, where a room or a set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the operation of the agreement.
• Hotel accommodation booked on Rate-Contract Agreement, however, is not to be considered as hotel accommodation to have been booked on a regular basis: However, contracts for providing specified types of hotel rooms at pre-determined rates are merely in the nature of the rate contract, and it cannot be said to be accommodation taken on a ‘regular basis’. Therefore, it would be outside the purview of Section 194I of the Income Tax Act.

Note: This is because the occupancy would be optional or casual and the hotel is not obligated to provide the rooms.

Applicability of TDS provisions on Hotel Accommodation under Section 194I of the Income Tax Act, 1961

Where a person, except an individual or Hindu Undivided Family, is responsible for payment for booking hotel accommodation (which shall be considered in the nature of rent) to a resident, such person, therefore, shall be liable to deduct TDS on such payment to the hotel.

What is to be considered as “rent” for the application of TDS under Section 194I on Hotel Accommodation?

Rent is any payment under any lease, sub-lease, tenancy, or any other agreement or any other arrangement for utilizing, either separately or together, any of the following-

1. Land; or 2. Building which includes factory building; or 3. Land appurtenant to a building which includes a factory building; or 4. Machinery; or 5. Plant; or 6. Equipment; or 7. Furniture; or 8. Fittings,

Note: However, it is not essential that the deductee owns any or all of the places mentioned above.

Rate of deduction of TDS on payment made towards Hotel Accommodation under Section 194I of the Income Tax Act, 1961

The rate at which TDS is to be deducted on any payment made for hotel accommodation by any person, to a Resident– 1. It will be 2% for using: – Any machinery, or – Plant, or – Equipment; and 2. It will be 10% for using: – Land or building which includes factory buildings, or – Land appurtenant to a building which includes a factory building or – Furniture or – Fittings.

Time of deduction of TDS on payment made for Hotel Accommodation under Section 194I of the Income Tax Act, 1961

TDS is required to be deducted in case of payment made for hotel accommodation when –

• Such sum is credited to the account of the payee; or
• Payment is made to the deductee in cash or by way of issue of cheque/ draft/ any other mode whichever event takes place earlier.

Deemed application of provisions of TDS on payment made for Hotel Accommodation under Section 194I of the Income Tax Act, 1961

In case where the amount is credited to the Suspense Account or any other account in the books of the person who is liable to make payment to the deductee, it will be deemed to have been credited to the account of the deductee and the provisions for deduction of TDS on payment made for such hotel accommodation will apply.

Threshold Limit for deduction of TDS on Hotel Accommodation under Section 194I of the Income Tax Act, 1961

• The threshold limit for deduction of TDS under Section 194I is Rs. 2,40,000. i.e., if the aggregate amount of payments made by the for booking hotel accommodation does not exceed Rs. 2,40,000, TDS under Section 194I shall not be deducted.
• If it exceeds the threshold limit, then TDS will be deducted at the rate of 2% or 10%, as the case may be under Section 194I of the Act.

Exemption from Deduction of TDS for Hotel Accommodation under Section 194I of the Income Tax Act, 1961

TDS shall not be deducted by the payer in the following cases: 1. Individual and HUFs: It will not apply to an individual or a Hindu Undivided Family or HUF. But it will apply if the total sales, gross receipts, or turnover from the business or profession exceeds: – In case of business – Rs. 1 crore, or – In case of profession – Rs. 50 lakhs Such income must have been earned during the FY immediately preceding the FY in which such payment is made to the hotel is made

2. Business Trust: No TDS will be deducted where Income by way of rent is credited/ paid to a business trust, being a real estate investment trust, in respect of any real estate asset, under Section 10 (23FCA) that is owned directly by such business trust.

3. Sum doesn’t exceed Rs. 2,40,000: In case the amount or aggregate of amounts credited/ paid during the FY by the payer does not exceed Rs. 2,40,000, no TDS will be deducted.

Clarification by CBDT

Circular • When the payments are made for hotel accommodation, they will be considered as payments made towards rent as per Section 194I. – [Circular No. 715 / 1995]. • Where corporate employers, travel agents, or tour operators arrange for hotel rooms on standard tariff for customers, guests, or executives, these are in the nature of Rate-Contract Agreements. – [Circular No.: 5/2002]

Landmark Judgements for Section 194I (TDS on Hotel Accommodation) of the Income Tax Act, 1961

•Dadiba Kali Pundole v. ACIT [2020], ITAT- Since, the accommodation of the club was on a casual basis when a foreign consultant came and as it was not earmarked, it will not be covered under Section 194I. • In the case of Apeejay Surrendera Park Hotels Ltd. v. Union of India [2016], the High Court held that where amenities and facilities of a hotel are utilized by the payer, it will fall under Section 194I as a deduction of TDS on hotel accommodation.

Illustration XYZ Ltd. has booked hotel rooms for the shooting of a film at different locations in Jaipur for the film artists. Hence, at what rate, the TDS will be deducted? [Let us assume that the amount paid is Rs. 2,60,000]

Solution: The rate and amount of TDS on hotel accommodation will be 10% and Rs. 26,000 respectively as it exceeds the threshold limit (i.e. Rs. 2,40,000).

Illustration Mr. Y, a manager of Rupa Publishers, has booked a hotel room for the executives working in his team at a pre-determined rate. Therefore, at what rate, TDS will be deducted?

Solution: The payment will not be covered under Section 194I because it is a Rate-Contract Agreement. Therefore, no TDS will be deducted under Section 194I of the Act.

Want to know more about TDS on payments made for Hotel Accommodation? Get a free trial to our ‘ TDS Course ’ today

Read more about the TDS Sections

• Section 192 of Income tax act
• Section 193 of Income tax act
• Section 194 of Income tax act
• Section 194B of Income tax act
• Section 194C of Income tax act
• Section194EE of Income tax act
• Section 194H of Income tax act
• Section 194I of Income tax act
• Section 194IA of Income tax act
• Section 194 J of Income tax act
• Section 194K of Income tax act
• Section 194LD of Income tax act
• Section 194LBB of Income tax act
• Section 194M of Income tax act
• Section 194N of Income tax act
• Section 194O of Income tax act
• Section 194Q of Income tax act
• Section 194R of Income tax act
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Tour Operator & Applicability of TDS rules on hotel booking

Tour Operator & Applicability of TDS rules on hotel booking

Most of the payment by companies/firms and individual covered by tax audit provision are required to be done by doing Tax Deduction at source (TDS). Not complying with the TDS provision have penal consequences.

There are often differences and confusion about the applicability of the TDS provision on certain payments. One such issue is with regard to the payment of room tariff or room charges by the tour operator to the hotels.

In general, the transaction by the tour operation and hotel are on principal to principal basis whereby tour operator makes the payment to the hotels for the room services availed by the customers.

Whether TDS is required to be deducted for hotel booking by tour operator on behalf of their customers? If yes, whether TDS would be required u/s 194-I (TDS on Rent) or U/s 194C (TDS on payment to contractors)?

It is worth mentioning here the Circular: No. 5/2002, dated 30-7-2002.

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 guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of “ Rate-Contract Agreements” .

A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period.

Where an agreement is merely in the nature of a  rate contract,  it cannot be said to be 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. So, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements.

However, in such cases, Section 194C which requires TDS on payment to contractor will come into play as the transaction is on principal to principal basis and tour operators are not acting as a pure agent on behalf of there customers who are using the Room services.. Therefore TDS on rate contract agreement is required to be deducted under section 194C by tour operator/travel agent.

An exception to the said rule could be there. In case where the tour operator pays for the room charges either directly or through tour operator and the transactions of the tour operator could be categories as the transaction of pure agent for their customers then TDS provision would not be applicable in the hands of the Tour operator. However, onus would be on the tour operator to prove the nature of transaction as that of “Pure Agent”.

TDS Rates u/s 194C:

At the rate of 1% in case of every individual and HUF.

At the rate of 2% in case of other than individual and HUF.

Threshold limit

Rs. 30,000/- for single payment

Rs 1,00,000/- aggregate during the financial year.

Timing of TDS is normal. It is required to be done at the time of payment or at the time of credit to the account of hotel, whichever is earlier.

There may be large scale violation of this provision. One needs to comply with it. The one caught is the one who is punishable.

Ignorance of law, whether individually or collectively by all, is no excuse.

As per Circular: No. 5/2002, dated 30-7-2002.Provision of section 194-I will not apply. Where hotel accommodation taken on regular basis on the basis of rate contract agreement.

Therefore, section 194C will apply in case of rate contract agreement. Tax is required to be deducted by tour operator/travel agent on hotel accommodation.

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Section 194C - Guide on TDS on Payment to Contractor

Updated on : Apr 22nd, 2024

10 min read

What is Section 194C?

Section 194C states that any person responsible for paying any sum to the resident contractor or sub-contractors for carrying out any work (including the supply of labor), in pursuance of a contract between the contractor and the following:

• The Central Government or any State Government
• Any local authority
• Any Statutory Corporation
• Any corporation established by or under a Central, State or Provisional Act
• Any company
• Any co-operative society
• Any authority constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the needs for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both
• Any society registered under the Society Registration Act, 1980 or under any such corresponding law to the Act in any Part of India
• Any university or deemed university
• Any Government of a foreign state or foreign enterprise or any association or body established outside India
• Any person who is an individual, HUF, AOP or BOI, who has total sales from the business or profession exceeds 1 crore or 50 lakhs during the previous Financial year respectivley.

What is the meaning of work for the purpose of Section 194C?

The expression, “work” in this section would include-

• Advertising
• Broadcasting and telecasting including production of programs for such broadcasting or telecasting
• Carriage of goods and passengers by any mode of transportation, other than railways
• Manufacturing or supplying of a product according to the requirement or specification of a customer by using the materials purchased from such customer or its associate as defined in section 40A(2), But does not include manufacturing or supplying of a product according to the requirements or specifications of a customer by using the materials purchased from a person, other than such a customer.

What is a Sub-Contractor as per Section 194C?

A “sub-contractor” would mean any person:

• Who enters into a contract with the contractor for carrying out, or
• For the supply of labor for carrying out the whole or part of the work undertaken by the contractor under a contract with any of the authorities or
• For the supply of, whether wholly or partly, any labor which the contractor has undertaken to supply in terms of his contract with any of the authorities mentioned under this section.  

Conditions to be Satisfied

• Payment is made to a contractor or sub-contractor who is resident within the meaning of Section 6 of the Income Tax Act, 1961
• Payment is made by a specified person as mentioned above
• Payment is made to carry out any work, including the supply of labor
• The amount of consideration of the contract in respect to which payment is made should not be less than Rs. 30,000
• The sum should be credited or paid by the contractor in respect of a contract undertaken by him with the specified bodies

When does TDS under Section 194C need to be deducted?

The person responsible for making payment to resident contractor/sub-contractor should deduct TDS,

• either at the time of crediting such sum to the account to the payee or
• at the time of payment thereof in cash or
• by an issue of a cheque or by any other mode, whichever is earlier. Where any sum is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such amount, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. Thus, the tax has to be deducted even if the amount payable to the resident contractor/subcontractor is transferred to the suspense account by the payer in his books.

What is the rate of TDS?

Note:- No Surcharge , Education Cess, and SHEC shall be added. Hence, TDS shall be deductible at basic rates.

Threshold limit for deduction of tax at source under section 194C 

• No deduction will be required to be made if the payment for the contract does not exceed Rs.30,000. 
• TDS would be deducted If the payments for the contractors exceeds Rs.30,000 in a single payment or 1,00,000 in the aggregate during the financial year.
• If a single payment to a contractor does not exceed Rs.30,000, TDS will also be deducted under Sec 194C, in which the total payment credited or paid to the contractor during the financial year exceeds Rs.1,00,000.

What are the Exceptions to TDS on Payment to Contractor?

Deduction of tds in case of composite contract.

• Where materials are part of the supply, the question is whether deduction will be made with reference to gross payment to the contractor or the net payment, i.e., gross payment minus deductions, if any,
• On account of materials supplied, will have to be decided in the light of the terms of the particular contract and the conduct of parties thereto.
• Where the contractor has undertaken to construct a building or a dam, specified person has undertaken to supply all or any of the materials necessary for the work at the stipulated prices, the deduction will be related to the gross payment without excluding any adjustments on account of the cost of materials.
• Where the contractor has undertaken only to provide the labour for the work, the ownership of the materials supplied remaining at all times with the specified person, the sum payable to the contractor in respect of the contract will only be the amount paid for such labour or services and will, thus, not include the price of the materials supplied by the government or other specified persons.  Thus, the rate of TDS from payments made by the government or other specified persons to any contractor will be 2% or 1% of the gross payment or, as the case may be, the net payment, depending on the terms of the contract. 

Provided the material value is separately mentioned on the invoice. If the value of the material is not mentioned separately in the invoice, then the TDS shall be deducted from the whole of the invoice.

Under what circumstances TDS u/s 194C is not deductible?

No tax is required to be deducted in the following cases:

• Where the sum paid or credited in pursuance of any contract does not exceed Rs. 30,000, or
• Where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year does not exceed Rs. 1,00,000 the person responsible for paying such sums will not deduct TDS under this section
• Individual or HUF not to deduct tax if the payment or amount credited to the contractor is for personal use
• No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages who owns ten or less goods carriages at any time during the previous year, on furnishing of his PAN along with declaration to this effect, to the person paying or crediting such amount

Time Limit within which Tax is to be Deposited

• Where the payment is made by or on behalf of the Government – On the same day.
• If the amount is credited in the month of March – On or before April 30th
• In other months – Within 7 days from the end of the month in which the deduction is made.

Note: The payer is the person responsible for TDS.

Issue of TDS certificate

In case of payments other than salary, TDS certificates are to be issued on a quarterly basis in Form No.16A. As per rule 31, every person responsible for deduction of tax from payments other than salary has to issue a quarterly TDS certificate in Form No. 16A. The certificate is to be issued by the following dates:

As per CBDT Circular No. 1/2012, dated 9-4-2012, it is mandatory for all the deductors to issue TDS certificate in Form No. 16A by generating the certificate through TIN central system by downloading the certificate from the TIN website with a unique TDS certificate number. These provisions are applicable in respect of all sums deducted on or after 1-4-2012. The certificate so issued can be authenticated either by using the digital signature or manual signature.

TDS at a Lower Rate

According to Section 194C where the AO is satisfied that the total income of contractor or sub-contractor justifies the deduction of income-tax at any lower rate or no deduction of income-tax, as the case may be, the AO shall, on application made by the contractor or sub-contractor in this behalf give to him such certificate as may be appropriate. The contractor or sub-contractor can then furnish the lower rate or nil TDS certificate to the deductor.

Related Articles  

• Section 194M – TDS on payment to resident contractors and professionals
• TDS on Professional Fees
• TDS/TCS on non filing of Income Tax Return
• TDS on Rent

Frequently Asked Questions

Section 194C governs the TDS provision applicable to any person making payment to a resident contractor for carrying out work between a resident contractor and ‘specified person’ ( central or state government, local authority, company, etc)

If the payment made to the contractor is not more than Rs.30,000, no TDS is required to be deducted on the payment to the contractor. However, if the total of all such payments made or to be made during a financial year exceeds Rs.1,00,000; TDS shall be deducted under Section 194C.

The payer is required to deduct TDS at 1% in case the payment is made to an individual or HUF, and 2% if the payment is made to any other person.

TDS under Section 194C is required to be deducted within earlier of following dates – – at the time of credit of the sum to Contractor  – at the time of payment in cash/cheque/draft or any other mode

No, this section does not require a written contract. Even if an agreement is verbal, TDS should be deducted. 

• No individual or HUF shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for the personal purpose of such individual or any member of HUF
• No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his PAN, to the person paying or crediting such amount

Section 194C also covers the supply of labour. Payments to manpower supply agencies are payments for labour services. Accordingly, the provisions of section 194C shall apply.

However, Payments to recruitment agencies are in the nature of payment for services. The payment will, however, be subject to TDS under section 194J of the Act.

• For the supply of, whether wholly or partly, any labor which the contractor has undertaken to supply in terms of his contract with any of the authorities mentioned under this section.

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