TDS on Food Catering Services Complete Guide Income Tax Act

TDS on Food Catering Services Complete Guide Income Tax Act 2025

Under the Income-tax Act, 2025, food catering services fall strictly under the rules for “payments to contractors.”

Here is the complete analysis of TDS on catering services:

1. Legal Definition of Catering

Under Section 402(47)(d) of the Income Tax Act 2025, “catering” is explicitly classified and defined under the term “work”. Therefore, any contract for catering is treated as a works contract for tax deduction purposes.

In the Income-tax Act, 2025, the term “catering” is formally defined under Section 402(47)(d).

Within this section, “catering” is legally classified as a specific inclusion under the broader definition of “work” for the purposes of Chapter XII (the chapter that governs Tax Deducted at Source and related compliance rules).

According to Section 402(47)(d), the legal definition of “work” strictly includes the following activities:

Advertising
Broadcasting and telecasting, including the production of programmes for such broadcasting
Carriage of goods or passengers by any mode of transport, other than by railways
Catering
Manufacturing or supplying a product according to the specific requirement or specification of a customer, by using materials purchased directly from that customer or their associate.

2. Governing Section and TDS Rates

TDS on payments made for carrying out any “work” (including catering) in pursuance of a contract is governed by Section 393(1) [Table: Sl. No. 6(i)]. The applicable TDS rates depend entirely on the legal status of the payee (the caterer):

1% if the catering contractor is an Individual or a Hindu Undivided Family (HUF).
2% if the catering contractor is a person other than an Individual or HUF (e.g., a Company, Partnership Firm, LLP, etc.).

3. Threshold Limits for Deduction

For standard businesses and designated persons making payments to a caterer, TDS is not applicable on minor amounts. It must be deducted only if:

A single payment or invoice for the catering exceeds ₹ 30,000.
The aggregate of all payments made to that specific caterer during the tax year exceeds ₹ 1,00,000.

4. Rules for Individuals and HUFs (Payers)

If the person paying the caterer is an Individual or HUF who is not otherwise required to deduct tax under the standard designated contractor provisions, they are subject to different rules under Section 393(1) [Table: Sl. No. 6(ii)]:

High-Value Contracts: They must deduct TDS at a flat rate of 2% if the total payment to the caterer exceeds ₹ 50,00,000 (Fifty lakh rupees).
Personal Purpose Exemption: Crucially, if the catering service is credited or paid exclusively for the personal purposes of the individual or any member of the HUF (for example, catering for a personal family wedding or party), no TDS is required to be deducted, regardless of the amount.

5. Reporting Codes for TDS Returns

When the deductor deposits the tax and files their quarterly TDS returns, they must use specific codes to report the catering payments accurately:

Code 1023: To be used when the caterer is an Individual or HUF (1% deduction rate).
Code 1024: To be used when the caterer is any other entity (2% deduction rate).

Is tds applicable on supply of food ?

Whether TDS is applicable on the supply of food depends entirely on the nature of the transaction—specifically, whether it is classified as a “contract for catering” (a service) or a mere “sale of goods”.

Here is the breakdown based on the Income-tax Act, 2025:

1. Supply of Food as “Catering” (Works Contract) If the supply of food is provided under a catering arrangement (such as hiring a caterer for an event, an office canteen contract, or supplying meals according to specific requirements), the law explicitly defines “catering” as a type of “work” under Section 402(47)(d) of Income Tax Act 2025.

TDS Applicability: Because it is considered “work”, you must deduct TDS under Section 393(1) [Table: Sl. No. 6(i)].
Rate: 1% if the caterer is an Individual/HUF, or 2% for any other entity.
Threshold: TDS is only deducted if a single invoice exceeds ₹ 30,000 or the aggregate payments in a tax year exceed ₹ 1,00,000. (Note: If paid by an individual/HUF exclusively for personal family purposes, no TDS is required).

2. Supply of Food as a “Sale of Goods” If the transaction is a direct, over-the-counter purchase of food items, packaged food, or a standard restaurant bill without any specific catering contract, it does not fall under the definition of “work”. It is legally treated as a standard purchase of goods.

TDS Applicability: The standard 1% or 2% contractor TDS does not apply. Instead, it falls under the rules for the purchase of goods under Section 393(1) [Table: Sl. No. 8(ii)].
Rate & Threshold: TDS is applicable at a nominal rate of 0.1%, but only if the total amount paid to the seller for purchasing goods exceeds ₹ 50,00,000 during the tax year.
Buyer Condition: Furthermore, this 0.1% TDS is only required to be deducted if the buyer’s total business sales/turnover exceeded ₹ 10 crores in the immediately preceding tax year.

Is tds applicable on supply of food in office

The applicability of TDS on the supply of food in an office depends strictly on the nature of the arrangement you have with the supplier.

Under the Income-tax Act, 2025, you must determine whether the arrangement is a continuous contract for catering or a simple purchase of goods:

1. If it is an Office Canteen or Corporate Catering Contract If your office has a formal or continuous arrangement with a vendor to supply daily meals, run an office canteen, or provide event catering, this is legally classified as “catering”.

Legal Definition: Under Section 402(47)(d), “catering” is explicitly included in the definition of “work”.
TDS Applicability: Because it is considered “work”, you must deduct TDS under Section 393(1) [Table: Sl. No. 6(i)] as a payment to a contractor.
TDS Rates: The rate is 1% if the caterer is an Individual or a Hindu Undivided Family (HUF), and 2% if the caterer is any other entity (like a Company or Firm).
Threshold: You are required to deduct this tax if a single payment/invoice exceeds ₹ 30,000, or if the aggregate of all payments made to that caterer during the tax year exceeds ₹ 1,00,000.

2. If it is an Occasional Purchase of Food (Sale of Goods) If your office simply orders food, snacks, or beverages over the counter from a restaurant, bakery, or food delivery app without any underlying catering contract, it does not qualify as “work”. It is treated as a standard purchase of goods.

TDS Applicability: The 1% or 2% contractor TDS does not apply. Instead, it falls under the provisions for the “purchase of any goods” under Section 393(1) [Table: Sl. No. 8(ii)].
TDS Rate & Threshold: TDS is applicable at a nominal rate of 0.1%, but only if the total amount paid to a single seller for purchasing goods exceeds a massive ₹ 50,00,000 during the tax year.
Buyer Condition: Furthermore, as the office (buyer), you are only liable to deduct this 0.1% tax if your business’s total sales, gross receipts, or turnover exceeded ₹ 10 crores in the immediately preceding tax year.

Is tds applicable on buffet dinner / Tds on catering services in hotel

The applicability of TDS on a buffet dinner depends on how the dinner is organized and billed, following the same principles as food supply and catering under the Income-tax Act, 2025:

1. Buffet Dinner under an Event or Catering Contract If you hire a vendor, hotel, or restaurant to specifically organize, set up, and serve a buffet dinner for a corporate event, function, or party, this arrangement legally qualifies as “catering”.

Legal Classification: The Act explicitly defines “catering” as a type of “work” under Section 402(47)(d).
TDS Rule: Because it is considered a works contract, you must deduct TDS under Section 393(1) [Table: Sl. No. 6(i)].
Rate and Threshold: You must deduct 1% (if the caterer is an Individual/HUF) or 2% (for other entities) if the single buffet bill exceeds ₹ 30,000 or if your aggregate payments to that vendor exceed ₹ 1,00,000 in the tax year.

2. Walk-in Restaurant Buffet (No Catering Contract) If you or your team simply walk into a restaurant to eat a standard, pre-existing buffet dinner and pay the bill over the counter without any prior contract for organizing the event, it does not qualify as “work”.

TDS Rule: The 1% or 2% contractor TDS does not apply because it is treated as a standard purchase.
High-Value Exception: It would only fall under the rules for the purchase of goods under Section 393(1) [Table: Sl. No. 8(ii)], which requires a 0.1% TDS deduction, and this only applies if your total payments to that specific restaurant exceed ₹ 50,00,000 during the tax year (provided your business turnover in the preceding year exceeded ₹ 10 crores).

3. Personal Purpose Exemption If the buffet dinner is hosted and paid for by an Individual or a Hindu Undivided Family (HUF) exclusively for their personal purposes (such as a personal family gathering or wedding), no TDS is required to be deducted under the contractor provisions, regardless of the bill amount.

TDS on Food Catering Services Provisions under Old Income Tax Act 1961

TDS on food catering services is governed by Section 194C of the Income Tax Act, which classifies catering as a “work” contract.

Applicable TDS Rates

The rate of deduction depends on the status of the caterer (the deductee) and the availability of their Permanent Account Number (PAN):

1%: If the payment is made to a resident Individual or Hindu Undivided Family (HUF).
2%: If the payment is made to any other resident person, such as a Company, Partnership Firm, or Trust.
20%: If the caterer fails to provide a valid PAN.

Exemption Thresholds

Tax is only required to be deducted if the payment exceeds the following limits:

Single Transaction: Over ₹30,000.
Aggregate Annual Payment: Over ₹1,00,000 in a single financial year.
Note: If a single payment is less than ₹30,000 but the total payments to that caterer for the year exceed ₹1,00,000, TDS must be deducted on the entire amount.

Key Compliance Rules

Calculation Base: TDS should be calculated on the invoice value excluding GST, provided the GST component is mentioned separately on the bill.
Timing: Tax must be deducted at the earlier of two events: when the sum is credited to the caterer’s account (even a suspense account) or when the actual payment is made.
Personal Purpose Exemption: Individuals or HUFs are not required to deduct TDS if the catering services were for personal purposes (e.g., a family wedding) and they are not subject to a tax audit.
Ordinary Restaurant Dining: TDS under Section 194C does not apply to food served in a restaurant in the normal course of business; it specifically targets contractual catering services.

Filing and Certificates

Forms: Deductors must file quarterly returns using Form 26Q on the Protean (formerly NSDL) portal.
Certificates: A TDS Certificate (Form 16A) must be issued to the caterer quarterly through the TRACES website.

Judgment on TDS on Food Catering Services

The Assessing Officer held that services of catering rendered by M/s Monginis is technical service and therefore, deduction of tax at source by the respondent has to be under Section 194J of the Act. However, in appeal both the Commissioner of Income Tax (Appeals) (CIT(A)) as well as the Tribunal on facts have come to finding that the services rendered by M/s Monginis of cooking and serving food would fall within the defination of “work” provided under Section 194C of the Act. Thus, the tax has been properly deducted at source by the respondent. Refer Judgment TDS u/s 194C will apply on Payments made for catering services : Bombay HC

Is itc available on catering services

Input Tax Credit (ITC) on food and catering services is generally blocked under Section 17(5)(b)(i) of the CGST Act. This means that for most businesses, the GST paid on catering bills (like for office parties, lunches, or team meetings) is an additional cost and cannot be set off against tax liabilities.

However, there are three specific legal exceptions where you can claim ITC:

1. Statutory Obligation (Canteens mandated by law)

If your company is legally required to provide food under a specific law (e.g., the Factories Act, 1948, which mandates a canteen for factories with more than 250 workers), you can claim ITC on the catering service bills.
Restriction: If you recover any cost from your employees, the ITC might be limited to the portion the employer actually bears.

2. Outward Supply of the Same Category

ITC is available if you use the catering service as an input to provide the same outward taxable service.
Example: If a caterer hires a sub-contractor for a portion of the food supply, the primary caterer can claim ITC on the sub-contractor’s invoice.

3. Element of a Mixed or Composite Supply

You can claim ITC if the food is part of a bundled “composite supply” (where one service is the principal element).
Example: An event management company providing a full package (venue, décor, and food) taxed at 18% can often claim ITC on the catering portion of their costs.

Quick ITC Eligibility Guide

Scenario	GST Rate Charged	ITC Eligibility
Standalone/Outdoor Catering	Usually 5%	No (Blocked Credit)
Mandatory Factory Canteen	5% or 18%	Yes
Catering at “Specified Premises”*	18%	Yes
Corporate Event (Package)	18%	Yes (to the planner)
Client Lunches / Office Parties	5% or 18%	No (Personal Consumption)

*Specified Premises refer to hotels with a room tariff of ₹7,500 or more per night.

To claim any eligible ITC, ensure you have a GST-compliant invoice issued in your business name and that the vendor is registered under GST.

Section 2 Income Tax Act 2025 Definitions

Section 393 Income Tax Act 2025 Tax to be deducted at source.

Section 402 Income Tax Act 2025 Interpretation.

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