TDS on Resort Payments for Staff Accommodation and Food in FY 2025–26

By CA Viraj Bhayani

For corporates and tax professionals, payments made to hotels and resorts for staff accommodation, conferences, offsites, and food arrangements have become a significant compliance concern in FY 2025–26 due to the amendments introduced under Section 194-I by the Finance Act, 2025.

With the TDS threshold for rent revised to ₹50,000 per month, even a single resort booking may now trigger tax deduction obligations. Further, catering, banquet, or food-related services billed separately may attract TDS under Section 194C.

This article analyses the amended provisions, CBDT circulars, practical scenarios, and key compliance risks involved in resort and hotel payments.

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 any payment, under any arrangement or agreement, for the use of land, building, furniture, fittings, or similar assets, whether under lease, tenancy, licence, or any other arrangement.

Key Changes Applicable from FY 2025–26

• Threshold limit: ₹50,000 per month

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• TDS rate: 10%

• Applicable on: Room rent, accommodation charges, hall usage, conference facilities, etc.

• Applicable to: All persons except individuals/HUFs not liable to tax audit under Section 44AB

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As a result, even a one-time hotel or resort booking exceeding ₹50,000 in a month may attract TDS under Section 194-I.

Section 194C – TDS on Catering and Food Arrangements

Explanation (iii) to Section 194C specifically includes “catering” within the scope of “work contract”.

Accordingly, payments for food, banquet services, buffet arrangements, event catering, and related hospitality services may attract TDS under Section 194C.

Key Features

• TDS rate:

  • 2% where payee is a company/firm

  • 1% where payee is an individual/HUF contractor

• Threshold limits:

  • ₹30,000 per contract

  • ₹1,00,000 aggregate during the financial year

Section 194C generally applies where catering or food services are separately contracted or separately billed.

CBDT Circulars Relevant to Hotel and Resort Payments

CBDT Circular No. 5/2002

TDS under Section 194-I is generally not applicable to hotel accommodation taken on a casual and non-recurring basis, provided there is no earmarked or dedicated arrangement.

However, where rooms are reserved regularly or under contractual arrangements, TDS liability may arise even if the monthly amount is below the threshold.

CBDT Circular No. 715/1995

Where invoices are composite and no bifurcation is available between accommodation and catering/services, TDS applicability shall depend upon the dominant nature of the contract.

In many cases, absence of segregation may result in TDS being deducted on the entire amount under Section 194-I.

Practical Scenarios and TDS Implications

Common Errors Observed in Practice

Practical Compliance Checklist

1. Review Monthly Payment Thresholds

Monitor whether payments to a particular hotel or resort exceed ₹50,000 in any month.

2. Obtain Split Invoices

Separate accommodation charges from food, banquet, décor, and event management charges.

3. Avoid Blanket Accommodation Arrangements

Recurring or earmarked room arrangements may nullify the “casual booking” protection under CBDT Circular No. 5/2002.

4. Verify Payer Category

Individuals and HUFs are liable to deduct TDS only where covered under tax audit provisions.

5. Check Residential Status of Vendor

Section 194-I and Section 194C apply only to resident payees. Payments to non-residents may attract Section 195.

Frequently Asked Questions (FAQs)

Q1. Is TDS applicable on a single resort invoice of ₹58,000 including food and stay?

Yes. If the invoice is composite and exceeds ₹50,000 in a month, TDS under Section 194-I may apply on the entire amount at 10%.

Q2. What if the same invoice is split as ₹40,000 for rooms and ₹18,000 for food?

In such a case:

• Room rent is below ₹50,000 – no TDS under Section 194-I

• Catering bill is below ₹30,000 – no TDS under Section 194C

Hence, no TDS liability may arise.

Q3. We regularly book the same hotel every month for ₹45,000. Is TDS applicable?

Yes, possibly. Even if the amount is below ₹50,000, recurring or earmarked arrangements may attract Section 194-I based on CBDT Circular No. 5/2002.

Q4. How should TDS be deducted on conference packages including rooms, food, décor, and AV equipment?

If invoices are properly bifurcated:

• Accommodation portion: Section 194-I @10%

• Catering portion: Section 194C @2%

• Other service components: Based on nature of service

If no segregation is available, the entire invoice may become liable under Section 194-I.

Q5. Can TDS be avoided by routing bookings through travel agencies?

No. Merely routing the payment through a travel agency does not eliminate TDS obligations. The substance and nature of the underlying transaction remain relevant.

Conclusion

The revised TDS framework applicable from FY 2025–26 significantly increases compliance exposure in relation to hotel and resort payments.

Even a single high-value booking may trigger TDS liability under Section 194-I. Further, incorrect classification between accommodation and catering expenses may lead to:

• Interest under Section 201(1A)

• Penalty under Section 271C

• Disallowance under Section 40(a)(ia)

Businesses should therefore focus not merely on deduction of tax, but on correct deduction under the appropriate section.

Action Points for FY 2025–26

• Track the monthly threshold of ₹50,000 carefully

• Obtain bifurcated invoices wherever possible

• Avoid recurring room block arrangements unless properly documented

• Apply Section 194C separately for catering and banquet contracts

• Maintain documentary evidence such as emails, quotations, agreements, and booking confirmations

• Verify PAN, residential status, and tax audit applicability before processing payments