TDS Without TAN, PAN for Hotel Bills & Property Deals — The Hidden Compliance Traps Buried Inside India’s New Tax Rules

India’s new tax rules hide a silent trap — pay a hotel bill wrong, and 30% of your expense vanishes forever. Buy property from an NRI without the right document, and you become a defaulter overnight. The rules changed April 1, 2026. Does your compliance know that yet?

India’s tax landscape changed permanently on April 1, 2026. The Income Tax Act, 2025 replaced the Income Tax Act, 1961 — a law that had governed Indian taxation for over six decades. The new Act promises simplicity. On the surface, it delivers: dozens of scattered TDS sections have been folded into just two master provisions — Section 392 (salary) and Section 393 (all other payments). Rent thresholds have been raised. Verification burdens have been reduced. Even the requirement for a TAN (Tax Deduction Account Number) has been waived in select scenarios.

But buried beneath this simplified architecture are a set of compliance traps that are already catching taxpayers off guard — particularly around hotel bills and property deals. If you pay a hotel for a long-term staff stay, book an entire resort for a corporate event, or purchase immovable property from a non-resident seller, the rules surrounding TDS are more nuanced, more consequential, and more misunderstood than ever.

This article is your definitive guide to navigating these hidden traps, written with the experience of practitioners who have seen these issues play out in audits, assessments, and penalty proceedings.

Why TDS Compliance Matters More Now

Before diving into specifics, understand the stakes. The new Income Tax Act, 2025 did not merely reorganize sections — it preserved (and in some ways strengthened) the consequences of non-compliance.

If you fail to deduct TDS on a payment and that default is traced to Tax Year 2026-27 onwards, you face three simultaneous consequences: recovery of the unpaid tax, interest at 1% per month for failure to deduct and 1.5% per month for failure to deposit after deduction, and a disallowance of 30% of the relevant expenditure when computing your business income under Section 35(b) of the 2025 Act. That last point is crippling in practice. Fail to deduct TDS on a ₹5 lakh professional fee and ₹1.5 lakh of that expense is simply denied as a deduction — you pay tax on phantom income.

At the extreme end, willful non-deposit of TDS can attract prosecution under Section 276B of the Income Tax Act, 1961, carrying imprisonment ranging from three months to seven years, along with a monetary fine. The safe harbor introduced in recent amendments provides relief only if you pay the defaulted TDS along with applicable interest before the due date for filing the quarterly TDS return — meaning the window to self-correct is tightly time-bound.

Understanding where TDS applies — and where it does not — is therefore not a matter of academic interest. It is a direct determinant of your tax liability, audit risk, and in extreme cases, personal liberty.

The Hotel Bill Problem: When a Stay Becomes a Liability

The 194I vs. 194C Battleground

The single most contested area in corporate TDS compliance has historically been hotel payments, and the new Act has inherited this complexity in full under the consolidated Section 393 framework. The question is deceptively simple: when you pay a hotel, which provision applies — the one governing rent (old Section 194-I, now covered under Section 393) or the one governing work contracts (old Section 194C, also now under Section 393)?

The answer depends entirely on the nature of your arrangement.

If your company books hotel rooms on a casual, transaction-by-transaction basis for employee travel, no TDS is generally required under the rent provisions, because there is no earmarking of specific rooms. However, CBDT Circular 5/2002 — which continues to hold interpretive value even under the new Act — established that if a corporate entity blocks or earmarks specific rooms with a hotel on a regular or fixed basis, that arrangement constitutes “rent of a building” and TDS under the rent provisions becomes applicable once annual payments cross the threshold.

The Finance Act, 2025 added a fresh layer of complexity: it reduced the TDS threshold for rent to ₹50,000 per month, meaning even a single resort stay, if part of a regular arrangement and crossing this monthly threshold, can now attract TDS. Before FY 2025-26, the annual threshold was ₹2,40,000 (i.e., ₹20,000 per month). The bar has been lowered significantly. A sales team accommodation arrangement at ₹48,000/month at a fixed hotel for 12 months can now trigger TDS obligations even though each individual monthly payment is below ₹50,000 — because the regularity and room-earmarking tests make it qualify as a rent arrangement.

The Food & Banquet Split: A Trap Inside a Trap

Here is where many corporate finance teams stumble. When a company pays a hotel or resort a consolidated bill covering accommodation, catering, and banquet services, the TDS treatment is not uniform.

• Room rent portion falling under a regular/earmarked arrangement and exceeding the monthly threshold: TDS at 10% under the rent provisions (old Section 194-I equivalent)
• Catering and food services separately billed under a contractual arrangement: TDS at 2% under the work contract provisions (old Section 194C equivalent)
• Seminar venue hire including meals: If the total payment exceeds ₹2,40,000, TDS under rent provisions applies on the room/venue component, while catering remains separately taxable under the work contract provision

The practical implication is stark. A corporate event at a five-star hotel billed as one consolidated invoice cannot be treated uniformly. Finance teams must request split invoices — one for accommodation/venue and another for catering — and apply TDS at the correct rate to each component. Failure to do so and applying a single blanket rate (or worse, no TDS) creates a default position that can be challenged during a tax audit.

Who Needs a TAN for Hotel TDS — and Who Does Not

Under the rent provisions applicable to individuals and HUFs (old Section 194IB, now mapped under Section 393 of the 2025 Act), individual tenants and HUFs paying rent above ₹50,000 per month to a resident Indian do not need a TAN. They use their PAN to file Form 26QC directly. This is a significant simplification that has been in place since 2017 but continues to be widely misunderstood.

The TAN exemption for individuals/HUFs applies only to:

• Payments under the 194IB equivalent (residential or commercial rent by non-audit-liable individuals and HUFs)
• The new PAN-based TDS mechanism for NRI property purchases (effective October 1, 2026)

Corporate entities, firms, LLPs, and HUFs subject to tax audit still require a TAN for all hotel-related TDS deductions. There is no blanket TAN waiver for business entities.

Property Deals: The TAN Trap for NRI Transactions

The Pre-2026 Compliance Nightmare

Until recently, purchasing immovable property from a non-resident seller was a compliance nightmare for ordinary home buyers. The seller, being a non-resident, fell under old Section 195 rather than the simpler Section 194-IA (which governed resident-to-resident property transactions). The key distinction: Section 195 mandated that the buyer obtain a TAN — a requirement ordinarily reserved for businesses and corporates — just to complete a single property transaction.

For an individual buying their first home from a returning NRI, this meant registering as a tax deductor with the income tax department, obtaining a TAN, filing quarterly TDS returns (Form 27Q), and issuing a TDS certificate — all for one transaction they may never repeat. The compliance burden was disproportionate, widely ignored, and a significant source of hidden default for unsuspecting buyers who were technically “assessee-in-default” without realizing it.

The Budget 2026 Relief: PAN Replaces TAN

Finance Minister Nirmala Sitharaman addressed this directly in the Union Budget 2026 speech, announcing that resident individuals and HUFs purchasing immovable property from non-residents will no longer need to obtain a TAN to deduct and deposit TDS. Instead, TDS will be deposited through a PAN-based challan — the same mechanism already used for resident-to-resident property transactions under Section 194-IA (now mapped under Section 393).

This change takes effect from October 1, 2026. Until that date, the old TAN requirement under Section 195 remains legally operative. Buyers who close NRI property deals between now and September 30, 2026, must still comply under the existing framework — including the TAN requirement — or face assessee-in-default status.

What Does Not Change After October 2026

The PAN-in-lieu-of-TAN relaxation is specifically and narrowly about the identification number used to deposit TDS. Every other substantive TDS obligation remains intact:

• The applicable TDS rate under Section 195 (which depends on the type of capital gains and applicable Double Taxation Avoidance Agreements, or DTAAs) is unchanged
• The buyer must still determine the correct TDS rate — which for long-term capital gains on property sold by an NRI can vary significantly based on DTAA benefits claimed by the seller
• If the seller does not furnish their PAN, TDS must be deducted at the higher rate of 20%
• Agricultural land transactions remain entirely exempt from TDS under these provisions

This is the trap many buyers will fall into after October 2026: relieved by the TAN waiver announcement, they assume the entire compliance obligation has been simplified. It has not. The rate determination, the depositing on time, and the accurate reporting still carry full legal weight.

The Structural Change: From 69 Sections to 2

What Sections 392 and 393 Mean in Practice

The most sweeping change in the Income Tax Act, 2025 is the consolidation of over 69 TDS-related provisions across the old Act into two operative sections. Section 392 governs TDS on salary. Section 393 governs TDS on all other payments — rent, professional fees, contractor payments, commission, interest, property purchases, and more — with rates and thresholds specified in structured tables within the section.

For finance teams, ERP system managers, and statutory auditors, FY 2025-26 was the last year of the multi-section TDS regime. From FY 2026-27 onwards, TDS return references, tax audit disclosures, internal SOPs, and accounting system configurations must all shift from section-based logic (194C, 194I, 194J) to a table-based reference system within Section 393 (e.g., 393(1) Sl.5(i)).

Thresholds That Have Changed

The new Act also brought meaningful threshold relief that reduces the compliance burden at the lower end of payments:

The rent threshold increase to ₹6,00,000 per year (₹50,000/month) at the annual level under Section 393 is relevant for businesses engaging hotels on regular contracts. However, this must be read alongside the Finance Act, 2025’s reduction of the monthly threshold under the 194IB equivalent (for individuals/HUFs) to ₹50,000/month — which, paradoxically, brings more individuals into the TDS net while simultaneously raising the annual ceiling for corporate deductors.

The Verification Simplification: Section 206AB Removal

One genuine relief deserves acknowledgment. Section 206AB of the 1961 Act had required deductors to verify whether the payee was a non-filer of income tax returns and apply higher TDS rates if they were. This created enormous operational burden — every payment required a compliance check on the payee’s filing history before the correct TDS rate could be applied.

The Income Tax Act, 2025 removes Section 206AB entirely. This dramatically reduces the verification load on businesses making large volumes of payments to vendors, contractors, and service providers. It is a genuine, substantive simplification — and its significance should not be understated in industries like FMCG, hospitality, and construction, where payments to hundreds of vendors are processed daily.

A Practical Compliance Checklist

Whether you are a corporate treasurer, a small business owner, or an individual purchasing property, the following checklist addresses the highest-risk areas:

For Hotel and Accommodation Payments:

• Review whether hotel bookings are casual or earmarked/regular — the latter triggers TDS under rent provisions once monthly payments exceed ₹50,000
• Request split invoices separating room rent from food/catering to apply the correct TDS provision to each component
• Ensure your ERP or accounting system is updated from old section references (194I, 194C) to the new Section 393 table references for FY 2026-27
• Individuals and HUFs not subject to tax audit: use PAN + Form 26QC, no TAN required
• Companies and audit-liable HUFs: TAN mandatory for all TDS on rent and work contracts

For Property Transactions:

• Resident buying from resident seller above ₹50 lakh: TDS at 1% under Section 194-IA equivalent; use Form 26QB; no TAN required
• Resident buying from NRI seller before October 1, 2026: TAN is still mandatory; apply Section 195 rates based on capital gain type and applicable DTAA
• Resident buying from NRI seller on or after October 1, 2026: TAN waived, use PAN-based challan, but rate determination under Section 195 is unchanged
• If seller (resident or NRI) does not provide PAN: deduct TDS at 20%

For General TDS Compliance from FY 2026-27:

• Update all TDS return filings to reference Sections 392 and 393 (not the old section numbers)
• Train finance and accounts payable teams on the new framework — misclassification carries penalty risk even when rates are identical across old and new provisions
• Self-correct any TDS defaults before the quarterly TDS return due date to avoid prosecution under Section 276B
• Failure to deduct TDS on business expenditure results in 30% disallowance under Section 35(b) of the 2025 Act — this is not a minor penalty, it is a direct increase in taxable income

The Expertise Gap: Why Most Defaults Are Unintentional

Speaking from a professional perspective, the majority of TDS defaults in the hotel and property segment are not deliberate evasion. They arise from three structural gaps:

1. The “it’s just a hotel bill” assumption. Finance teams routinely process hotel invoices as operational expenses without applying TDS scrutiny. The moment a hotel arrangement becomes regular, specific-room-earmarked, or contractual, it crosses a legal threshold that most accounts payable staff are not trained to recognize.

2. The PAN-TAN confusion. The gradual expansion of PAN-based TDS (for individuals, for 194IB, for NRI property deals post-October 2026) creates a false impression that TAN is broadly irrelevant. For corporate entities, TAN remains mandatory across all non-individual TDS scenarios.

3. Transition confusion between the 1961 and 2025 Acts. Payments made before March 31, 2026, will be assessed under the 1961 Act even if the proceeding is initiated after April 1, 2026. The new Act’s consolidation does not retroactively absolve defaults under the old Act’s section structure.

The Bottom Line for Taxpayers

India’s new Income Tax Act, 2025 is not a tax holiday. It is a structural reorganization that simplifies the law’s architecture while preserving — and in some contexts strengthening — the obligations and consequences for deductors. The removal of TAN requirements in specific scenarios is a welcome relief for individuals and small taxpayers, but it comes packaged with precise conditions, effective dates, and exceptions that demand careful attention.

For hotel payments, the critical question remains: is this arrangement casual or contractual? For property transactions, the question is: is the seller a resident or non-resident, and have you applied the correct rate mechanism? For all business payments from FY 2026-27 onwards, the question is: does your compliance infrastructure reflect Section 393 or is it still running on the old section logic?

The compliance traps buried inside India’s new tax rules are not designed to deceive. But they will catch those who assume that simplification means relaxation. It does not. It means fewer sections to track, but the same legal precision required to get each one right.

The author recommends consulting a qualified Chartered Accountant or tax advisor for specific transactions, particularly NRI property purchases, high-value hotel arrangements, and transition-year TDS compliance.

Disclaimer: This article is for informational and educational purposes only and does not constitute legal or tax advice. Tax laws are subject to amendment; always verify the current provisions with official sources or a licensed professional.