All you need to know about TDS and Income Tax rates on prize money from Lottery and Game Shows:
Mr. Ajay won a lottery for Rs. 20,00,000 but was surprised to find that the actual amount credited to his bank account was almost 30% lower than the prize money i.e. Rs. 20,00,000. It was because the organiser before handing over the prize money to Mr. Ajay deducted the TDS as per the applicable rates. Mr. Ajay was wondering how much is the TDS rate on the prize money and what is his income tax liability on such amount.
Deduction of TDS is not just restricted to winnings from lotteries but also covers any income by winnings from horse races, crossword puzzles, card games, an entertainment program on television or electronic mode, gambling or betting, etc. The post below will help you to understand the tax implications on the income by winning from all such activities.
Definition of Lottery and Card Games
As per section 2(24)(ix) of the Income Tax Act, lottery and card games are defined as below:
“Any winnings from crossword puzzles, lotteries, card games and other games of any sort, races including horse races, or from gambling or betting of any form or nature whatsoever”. All such income are always taxed under the head “Income from other sources” as per section 56(2)(ib).
According to the above clause, lottery and card games include the following:
Card game and other game of any sort: It includes an entertainment programme on television or electronic mode, any game show; in which people compete to win prizes or any other similar game .
Lottery: It includes gains from prizes presented to any person by chance or by draw of lots or in any other manner whatsoever, under any scheme or arrangement by whatever name called.
Under the provision of section 194B of the IT Act, 1961 the TDS rate for any income earned by way of winnings from crossword puzzles, lotteries, card games and other games of any sort is 30% for the assessment year 2017-18.
The TDS rate for income from winning horse races is also 30% for the assessment year 2017-18 as per section 194BB of the Income Act, 1961.
Threshold Limit for Tax Deducted at Source (TDS)
Under the provision of section 194B of the Income Tax Act, TDS will be deducted if the prize money to be paid or payable in case of winnings from Lottery/Crossword puzzles exceeds Rs. 10,000 for the assessment year 2017-18.
In the event of winnings from horse races if the prize money exceeds Rs. 10,000 for the assessment year 2017-18, TDS will be deducted as per section 194BB.
Provision for Income Tax deduction
Section 115BB defines the tax on winnings from crossword puzzles, lotteries, card games and other games of any sort, races including horse races, or from gambling or betting of any form or nature whatsoever as follows:
Where the gross income of any person being assessed includes any income by way of winnings from any crossword puzzle or lottery or card game and other game of any sort or race including horse race (income is not from the activity of owning and maintaining race horses) or from betting/ gambling of any form or nature whatsoever, the income-tax payable shall be the total of:
• The calculated income tax amount on income by way of winnings from such crossword puzzle or lottery/ card game & other game of any sort or race including horse race or betting/gambling of any form or nature whatsoever, at the rate of 40%; and
• The amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in the above point.
Liability on the Organiser conducting the Lottery or Gambling/Betting of any type
• The person or the organisation responsible for conducting the lottery or any other type of legal betting/gambling is mandatorily required to deduct tax at source (TDS) as per section 194B of the IT Act, 1961 at the rates thereof, if the prize money is more than Rs. 10,000 and deposit the requisite amount to the Income Tax department on behalf of the person winning the lottery.
• Section 276B of the IT Act, 1961 lays down the rules for the failure of TDS credit to the central government within the prescribed time and requires the organiser deducting the tax at source to be prosecuted for a term between 3 months to 7 years along with monetary fine.
Nature of Payment
• If the winner gets the award in form of cash/demand draft/cheque etc, prize money shall be paid after the deduction of tax at source (TDS) as per the effective rate, if the winning amount exceeds the threshold of Rs. 10,000 in a financial year.
• If the winner gets the award in kind, he/she will be required to calculate the approximate value of such payment and pay the tax from his/her pocket as per the applicable rate.
• If the winning is wholly in kind or partly in kind and partly in cash, but the part in cash is not sufficient enough to meet the tax liability against the total prize money, the person responsible for paying the prize money need to ensure that the total tax liability is met before handing over the prize money.
Also read: Gift Tax in India: Implications & Exemptions
Issuance of TDS Certificate
The person or the organisation conducting the lottery or any other type of legal betting/gambling is mandatorily required to issue the TDS certificate to the winner as per section 203 of the Income Tax Act within one month from the end of the month in which the credit was given, or the sum has been paid.
Liability on the Winner
• The winner is required to include the prize money under the head “Income from other sources” while filing the tax returns and submit the TDS certificate as a proof of tax payment against the prize money.
• The persons earning such income have to continue paying the tax as per their income tax slab rates on the income earned by other means.
• Income tax deducted on such prize money is non-refundable.
No Deductions Allowed
• No deduction for any expenditure or allowance is allowed for the computation of the income tax on the revenue generated by winnings from crossword puzzles, lotteries, races including horse races, card games & other games of any sort or from betting /gambling of any form or nature, whatsoever. In other words, the entire income is taxable from such winnings. This rule is per section 58(4) of the Income Tax Act, 1961.
• Deductions under Chapter VI-A (Section 80C to Section 80U) are not allowed for any such income.
Applicable rate for non-disclosure of PAN (Permanent Account Number)
As per section 206A of the Income Tax Act, if the person entitled to receive any sum or income or any amount on which the tax is deductible under Chapter XVIIB, don’t furnish the PAN detail to the person responsible for deducting the tax, the tax will be deducted at the higher of the below rates:
1. At the rate or rates in force or
2. At the rate specified in the relevant provision of this Act; or
3. At the rate of 20%