Tour Operator & Applicability of TDS rules on hotel booking

TDS rules

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Tour Operator & Applicability of TDS rules on hotel booking

Issue

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)?

Provision

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.

Conclusion

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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