Tax reduction is a part of every lottery. If you have won a lottery in Kerala recently and are wondering about how much you will actually receive, read this article below to get a thorough understanding
Tax For Lottery Winnings Prize – Are you among those fortunate people who have won a huge amount of lottery? Are you heading your way toward claiming the full lottery money? But wait, here is a loophole. Even if you win the full lottery money, a fraction of the total money will be deducted. Eager to know why? Then read on!
Taxation is imposed upon all income sources. You may think that lottery winning would not be considered as an income source, but it is counted too. Prizes and winnings are always taxable once they are in the winner’s possession. The reward would be subject to tax according to Section 56 and reported under the title “Income from Other Sources.” The lottery winners are allowed to receive 63% of the total prize money. The agency commission of Kerala State lottery deducts an additional tax of 10% along with the income tax of 30%.
Tax For Lottery Winnings Prize in Kerala
Prizes and honors that have not gained official clearance is subject to a 30% tax. Additionally, a cess rise in tax rate will be required. The appropriate cess tax is 4% on all amounts over 30%, making the total tax rate 31.2%, which is 30% + (4% of 30%). This rate would be applicable no matter what the person’s tax slab rate was. This means that even if a person’s income is below the 20% slab rate, their award and prize winnings will still apply to a 31.2% rate of taxation.
If you receive a reward or winnings in kind, the item’s market value is taken into consideration. The amount of tax is then calculated based on the market value of the item. Also, income tax is required at the same rate whether the reward is received for something like a car, bike, house, or any other thing. In that instance, the prize provider is required to withhold tax at a rate of 31.2% from the award’s market value and deposit it. The prize supplier may bear this cost or seek reimbursement from the winner.
If the wins are taxable, no reductions or tax-free exceptions may be taken from them. As a result, the taxpayer cannot deduct anything from gains that are taxable under Chapter VI A of the Income Tax Act (Section 80C, Section 80D, etc.).
For instance, if a person wins a lottery prize of ₹25 crores, the popular belief is that the person will receive ₹15.75 crores. But in reality, the recipient will only receive ₹12.89 crores after numerous tax deductions.
The award winner would have ₹15.75 crores in their bank account after 10 percent agent commission and 30% tax is deducted. In addition, if the prize winner has more than ₹5 crores in their bank account, they will have to forfeit 37% of the surcharge.
A health-education cess of 4 percent of the total tax and an extra amount is required. Therefore, after forgoing the 10% agent commission and having a tax burden of ₹25 crores, the winner will owe ₹9.61 crores in taxes. After the funds are credited to the bank account, the person must pay this within two months. In the event that person does not, a 1 percent monthly punishment will be imposed.
The majority of lottery prize winners are not aware of this, which will make submitting tax returns at the end of the year more difficult. The prize winner will be in trouble if they spend all of the money they earned before these deductions.
TDS Rate on Kerala Winning Lottery Tickets
Tax Deducted at Source, or TDS is a law that was passed by the Income Tax Department of India. The TDS concept was developed to enable tax to be collected from the precise source of revenue. This theory states that a person (deductor) who is compelled to make a specific type of payment to another person (deductee) must withdraw tax at the source and send the money to India’s Central Government.
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TDS must be deducted from winnings before awarding them to the winner under Section 194B or 194BB of the Income Tax Act’s regulations if the award or prize is worth more than INR 10,000. This means that there won’t be an additional cost or SHEC (Secondary & Higher Education Cess) or EC (Education Cess) Charges.
Tax Price for Different Lottery Tickets in Kerala
| Kerala Lottery name | Tax Amount |
| Pournami | ₹24 lakhs |
| Karunya Plus | ₹24 lakhs |
| Win-Win | ₹22.5 lakhs |
| Sthree Sakthi | ₹22.5 lakhs |
| Akshaya | ₹21 lakhs |
| Nirmal Weekly | ₹21 lakhs |
| Vishu/ Monsoon Bumpers | ₹1.35 crore |
The above table contains the list of the popular Kerala lotteries along with their respective income tax amount, that is supposed to be deducted from the prize money.
The first prize in Kerala’s state lottery Pournami is worth ₹80 lakhs. The agent commission for this amount is ₹8 lakhs, and the income tax amount is ₹24 lakhs. So, after the tax deduction, the person will receive ₹ 56 lakhs.
The highest reward in Kerala’s Win-Win lottery is ₹75 lakhs. An amount of ₹7.5 lakhs will be deducted as agent commission, and the income tax amount will be deducted around ₹22.50 lakhs for this first prize. After all the deductions, the person will get ₹52.50 lakhs.
The first reward money in the Akshaya Kerala lottery is ₹70 lakhs. The agent commission is ₹7 lakhs for this prize money. The income tax amount is ₹21 lakhs. Thus, after deductions, the amount is ₹49 lakhs.
The first prize money for the Nirmal Weekly of Kerala State is ₹70 lakhs. The agent commission for this prize amount is ₹7 lakhs, and the income tax amount is ₹21 lakhs. After deducting all these amounts, the final prize money is ₹ 49 lakhs.
The reward money for Karunya plus the lottery is ₹80 lakhs. The agent commission is ₹ 8 lakhs, and the income tax amount on this is ₹24 lakhs. So, the person will receive an amount of ₹56 lakhs in total.
Sthree Sakthi, the state lottery of Kerala, offers a top prize of ₹75 lakhs. The income tax amount and the agent commission are ₹22.50 lakhs and ₹7.5 lakhs, respectively. The final receiving amount is ₹52.50 lakhs
Conclusion
Every lottery reward is subjected to taxation. A responsible citizen should always keep in mind that whatever prize money is received from the lottery, taxation will always be charged upon it. According to the Income tax act, one is required to pay the due tax imposed on prize money within due time to avoid penalties.
FAQs
1. What is the process for reporting lottery winnings on an income tax return in India?
Lottery winnings in India are considered 'Income from Other Sources' and must be reported under this category on your income tax return. The winnings are subject to a flat tax rate of 30% (plus applicable surcharge and cess) without any deductions. The tax is usually deducted at source (TDS) by the lottery distributor before you receive the payout.
2. Can lottery winnings be legally shared with family or friends, and how is this taxed?
Yes, lottery winnings can be legally shared with family or friends. However, the full amount is initially taxed at 30% before distribution. If you share the winnings, any subsequent gifts may attract gift tax if they exceed the exemption limit, depending on the relationship between the parties.
3. How are joint lottery tickets taxed in Kerala?
In Kerala, if a joint lottery ticket wins, the prize money is divided among the co-owners as per their agreed share. Each person's share is taxed separately at the flat rate of 30% (plus surcharge and cess) before distribution. Proper documentation showing the agreement of joint ownership is necessary.
4. How are lottery winnings taxed if received by a non-resident Indian (NRI)?
For NRIs, lottery winnings are also taxed at a flat rate of 30% (plus surcharge and cess) under the category 'Income from Other Sources.' The winnings are subject to TDS, and the NRI can claim any applicable tax treaty benefits while filing their return in their country of residence, depending on the double taxation avoidance agreement (DTAA).
5. What are the tax implications if a lottery winner dies before the prize is claimed?
If a lottery winner dies before claiming the prize, the winnings become part of their estate. The legal heirs can claim the prize, which will still be subject to the 30% tax (plus surcharge and cess). The inherited winnings may also be subject to inheritance tax in some jurisdictions, depending on local laws.
