TDS on Common Area Maintenance (CAM) Charges: Section 194C vs. 194I
In a significant ruling (delivered in late 2025/early 2026), the Supreme Court of India dismissed a Special Leave Petition (SLP) filed by the Revenue, thereby affirming the long-standing position that Common Area Maintenance (CAM) charges attract TDS under Section 194C (contractual services) and not Section 194I (rent).
The Legal Dispute: Is CAM “Rent” or “Work”?
The conflict typically arises in commercial leases (malls, office complexes, or warehouses) where the tenant pays two types of charges:
Lease Rentals: Paid for the exclusive use and occupation of the premises.
CAM Charges: Paid for shared services like security, electricity in common areas, housekeeping, and maintenance of elevators/lobbies.
The Revenue’s Position (Section 194I):
The Assessing Officer (AO) argued that CAM charges are intrinsically linked to the occupation of the property. Therefore, they should be treated as “rent” and subjected to a higher TDS rate of 10%.
The Assessee’s Position (Section 194C):
Tenants (like Liberty Retail or Diamond Tree) argued that CAM charges are not for the use of the property but for services provided to maintain shared infrastructure. Thus, these are contractual payments for “work,” exigible to a lower TDS rate of 2%.
The Decision: Shared Expenses are Not Rent
The Judiciary (affirmed by the Delhi High Court and subsequently the Supreme Court) ruled strictly in favour of the assessee based on these core principles:
Nature of the Payment: CAM charges are contributed toward expenditure on cleanliness, utilities, and general upkeep of common areas. They represent shared expenses for common works and utilities.
Separation from Tenancy: Unlike rent, which grants a right to occupy a specific area, CAM charges do not confer possession. They are fundamentally for availing facilities that could be provided by the landlord or even an external third-party agency.
Definition of “Work”: The court held that such payments fall squarely within the meaning of “work” under Section 194C as they are contractual payments for carrying out maintenance and service-related tasks.
Erroneous Premise: The court clarified that the assumption that CAM charges are a “hidden form of rent” is legally incorrect. Even if the lease and CAM agreement are part of the same document, their tax treatment must follow their distinct economic characters.
Key Takeaways for Commercial Tenants
TDS Rates: Always ensure TDS on CAM is deducted at 2% (for companies/firms) or 1% (for individuals/HUF) under Section 194C. Deducting at 10% under Section 194I may lead to cash flow issues for the service provider, while deducting incorrectly could lead to an “assessee-in-default” notice for you.
Invoice Segregation: To avoid litigation, request your landlord to provide separate invoices for Rent and CAM charges. This clearly demonstrates the different nature of the two payments to the tax authorities.
Supreme Court Finality: With the dismissal of the Revenue’s SLP, the issue is now settled. Taxpayers can rely on this precedent to contest any demands raised by the AO treating them as in-default for deducting at the lower rate.
Summary Table: Comparison of TDS Treatment
| Feature | Lease Rent | CAM Charges |
| Relevant Section | Section 194I | Section 194C |
| Nature of Payment | Consideration for use of property | Contractual payment for services |
| Applicable TDS Rate | 10% | 2% (for most entities) |
| Legal Basis | Right of occupation/possession | Maintenance, cleaning, security |