As we all follow reality shows and know about their fascinating prize amounts of money, do we know about the taxability of such income? Read the article to know more about the maximum limit of exemption in the case of lotteries and game shows.
Applicability of this Section 115BB, 194B & 194BB of The Income Tax Act, 1961
As per Section 115BB of The Income Tax Act, 1961, the government would levy tax on winnings from lotteries, crossword puzzles, races including horse races, card games, and other games of any sort of gambling or betting of any form or nature whatsoever. This section levies a flat tax rate of 30% in addition to 4% Cess, which comes to 31.20%.
As per Section 194B of The Income-tax Act, 1961, if the prize money exceeds ₹10,000, then the winner will get the prize money after the deduction of TDS online at 30% (if the winner is Resident), at 30% Surcharge (if applicable), 4% Educational Cess (if the winner is Non-Resident).
As per Section 194BB of The Income Tax Act, 1961, the Applicability of this section on winning from horse racing, deduction of tax only if winnings are more than ₹10,000 at 30%.
If your business operated by a single individual then you should file Proprietorship ITR Filing
Defining the Various Terms
Lottery: As per ITAT, before a scheme can be regarded as a lottery, it should have an element of distribution of prizes which should be by chance or drawing of lots, and such distribution should be among those who had paid the price for taking participation in the scheme by buying a ticket.
Crossword Puzzles: Various organizations in India make arrangements for this game with exciting prizes for winning. It consists of intersecting rows of boxes where you must put letters into each box that spell out the words, for which clues have been explicitly provided for rows and columns.
Any other Game: Reality shows we watch on television or any other game which involves an element of gambling.
The maximum limit of exemption in the case of lotteries does not exist.
LLP income tax rates are the same as individual income tax rates, and they vary based on the total income earned during the financial year. Know more: LLP income tax rates
Rules for Income Tax on Lottery or Game Show Income
- In the case of winnings from horse races, income is taxable at 31.20% without any exemption limit. But TDS would only be applicable if the prize amount exceeds ₹10,000
- There would be no deduction of any expenditure allowed, even though the person incurred such expense for earning such income
- Deduction under Chapter VI A would not be permitted from this income, i.e., under Sections 80C, 80D, Section 80CCD, etc.
- Suppose a lottery agent is forbidden or is not allowed to participate in any draw or claim any prize, and an income accrues to him on lottery tickets remaining unsold, lying in his possession. In that case, such income cannot be considered winning. Such income would be regarded as regular business income. Director of State Lotteries v/s ACIT (1999) (Gauhati)
- Tax u/s 194B & 194BB shall be deductible only at the time of actual payment.
Income Tax on Prize Received in Kind
- If the prize money is wholly in kind or it is partly in kind and partly in cash, and the cash balance is not sufficient to meet the TDS Liability, the payer should ensure before releasing the prize only if either –
- He has collected the amount equivalent to the TDS amount from the Payee. OR
- He insists the Payee make the payment of the TDS amount on his own & submit the proof to the payer.
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Example:
Miss Chubina Dilaik, an Indian Resident, wins Small Boss and wins the following prizes:
- ₹1 Crore
- Mercedes- Benz (A – Class Limousine) – Market Price of ₹40 Lakhs
She received prize money in cash as well as kind, so the organisers of the show are liable to Deduct TDS u/s 194B of The Income Tax Act, 1961 at 30% [Because she is resident]. Now the cash prize is enough to meet the TDS liability of ₹42 Lakhs, and Therefore Miss Chubina Dilaik would receive:
- ₹58 Lakhs
- Mercedes- Benz (A – Class Limousine) – Market Price of ₹40 Lakhs.
In case the prize money in cash is only ₹10 Lakhs, then total TDS Liability would be ₹15 Lakhs. The payer should ensure either:
- Miss Dilaik pays excess ₹5 Lakhs to the Payer OR
- Miss Dilaik directly submits the TDS amount and the proof to the payer.
When Miss Dilaik receives this amount after TDS Deduction, she must file the Income Tax Returns online in which she has to furnish her income and pay tax at 30% u/s 115BB, with applicable surcharge and Educational Cess at 4%. Following are the calculations:
- Case 1: Total Income of ₹1.40 Crores
Income Tax at 30% – ₹42 Lakhs
Surcharge at 15% – ₹6.30 Lakhs
Cess at 4% – ₹1.932 Lakhs
Total – ₹50.232 Lakhs
Additional Liability – ₹8.232 Lakhs
- Case 2: Total Income of ₹50 Lakhs
Income Tax at 30% – ₹15 Lakhs
Cess at 4% – ₹0.6 Lakhs
Total – ₹15.6 Lakhs
Additional Liability – Rs. 0.6 Lakhs
Case Laws:
- Iqbal Chand Khurana vs Deputy Commissioner of The Income Tax – 8th August 2000
In this case, the issue involved determining the nature of income earned from the agents from unsold tickets. The agents or traders of tickets are not allowed to participate in the draw and to claim the prize in such a draw, whereas only a participant is allowed to purchase & participate in the draw. The trader or the agent does not participate in the lottery draw to win the prizes. Still, they would only derive the commission income by selling the tickets, which is considered business income only, while computing the income tax: https://incometaxindia.gov.in/pages/acts/income-tax-act.aspx. It was decided that the income accruing to a trader or agent in respect of receipt of any prizes on the unsold tickets or unclaimed prizes in possession of the agent would be considered as business income only and not income from lotteries.
Conclusion
We hope this article has helped you understand the income tax on winnings from the lottery, game shows, and puzzles. If you want to know more about this topic or need professional help associated with the relevant subject, VakilSearch is here to help.
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