Winning from the Lottery, Crossword Puzzle, Race, Games etc

Winning from the Lottery, Crossword Puzzle, Race, Games etc

Winning from the Lottery, Crossword Puzzle, Race, Games etc: Income from winning prizes and awards such as lottery, gaming or TV game shows, puzzles, online card games etc., are acknowledged as income from other sources under the head IFOS of Income Tax. The winner may collect such income in cash or kind. As per Section 115BB of the Income Tax Act, the tax rate is flat 30% for such income.

About The Taxed Charged

As per section 58(4), no deduction regarding any allowance or expenditure in connection with such income shall be permitted under any provision of the Income-tax Act. However, expenses relating to the activity of maintaining and owning racehorses are allowable.

In other words, without any allowance or expenditure, the entire income of winnings will be taxable. In fact, the Deductions from Gross Total Income which is the deduction made under sections 80C to 80U, will also not be possible from such income, although such income is considered a part of the total income.

The basic exemption of income (say Rs. 5,00,000) is not available to the assessee, as lottery income is taxed at a flat rate.

According to Section 115BB, a flat tax rate of 30% is applicable on income raised through a way of winnings from any: –

  • Lottery
  • Crossword Puzzle
  • Race including horse race (the income not being from the activity of maintaining and owning racehorses)
  • Card Game and any sort of other games( As per Section 24(ix) constitutes any game show, an entertainment programme on electronic mode or television, in which people compete to win prizes or any other similar games etc.)
  • Betting or gambling of any nature or form

Applicability of TDS

According to Section 194B, TDS is applicable at the special rate of 30% if the amount of winning surpasses Rs 10,000

  • Winning from Lottery
  • Crossword Puzzle
  • Game Shows
  • Races including Horse Race
  • Card Games
  • Gambling
  • Betting
  • Any other income of similar nature or form

TDS charged on winning from horse race is deductible at a rate of 30% if the amount of winning exceeds Rs 10,000 and recounts by Section 194BB.

Winning in Cash

Suppose the winning from a crossword puzzle, lottery etc., is in cash and surpasses Rs 10,000, then under section 194B (or 194BB in case of winning from horse race). In that case, the individual responsible for paying such an amount should deduct TDS at the rate of 30% on the whole amount before making such payment to the winner.

Winning Partly In Cash And Partly In Kind Or Wholly In-Kind:

If the winning is solely in kind (such as car etc.) or partly in kind and partly in cash, then the individual is responsible for paying tax at the rate of 30%, which should have been paid in respect of such winning before releasing the winning. The tax shall be determined on the grounds of the market cost of the winning, such as a car etc., along with the cash winnings. Generally, the shortfall in tax or amount of tax is collected from the winner and deposited to the government by the event organiser.

Income Under Section 115BB And Special Notes Related To It:

No available benefit of the basic exemption limit. In other words, if any individual has a single income in a year from gambling amounting to Rs 40,000, then the tax liability of that person (before rebate under section 87A) shall be Rs 12,000.

No deduction shall be permitted from such income under Chapter VI-A (Section 80C to Section 80U).

As per Section 58(4), no deduction in respect of any allowances or expenditure in connection with such income shall be permitted under any provision of this act in computing such income.

Tax deposited in respect of such income under section 87A shall not be refundable excluding the amount of rebate, which the winner claims

At the time of filing their income tax return, education cess and surcharge shall be paid by the winner.

As per Section 56(2)(ib), such income shall be chargeable to tax as Income from Other Source.

Comprehensive Example Of The Process Of Computation Of Income For Financial Year 2017-18:

Example: Mrs. A wins Rs 4,00,000 cash from the Crossword Puzzle. On such a receipt, a TDS of Rs 1,20,000 has been deducted. She has made a payment of Rs 50,000 towards LIC. She has no other income throughout the year.

Computation of Income: Amount

  • Income from Other Sources – 4,00,000
  • Total Income- 4,00,000
  • Tax @ 30% (special rate) –1,20,000
  • Education Cess- 3,600
  • Total Tax- 1,23,600
  • D.S.- 1,20,000
  • Tax Payable (excluding rounding off and interest u/s 288, if any)- 3,600

Example: Mr. B wins Rs 4,00,000 cash from the lottery. He purchases ticket worth Rs 20,000 for earning such an income. On such a receipt, a TDS of Rs 1,20,000 has been deducted. An amount of Rs 50,000 towards LIC is paid by him. He has no other specified income during the year.

Computation of Income: Amount

  • Income from Other Sources- 4,00,000
  • Total Income- 4,00,000
  • Tax @ 30% (special rate)- 1,20,000
  • Education Cess- 3,600
  • Total Tax- 1,23,600
  • D.S.- 1,20,000
  • Tax Payable (excluding rounding off and interest u/s 288, if any)- 3,600

Example: Mrs. C wins Rs 15,00,000 cash from the Gameshow. On such a receipt, a TDS of Rs 4,50,000 has been deducted. She has no other income throughout the year.

Computation of Income: Amount

  • Income from Other Sources- 15,00,000
  • Total Income-15,00,000
  • Tax @ 30% (special rate)- 4,50,000
  • Education Cess- 13,500
  • Total Tax- 4,63,500
  • D.S.- 4,50,000
  • Tax Payable (excluding rounding off and interest u/s 288, if any)- 13,500

Example: Mr. D wins Rs 9,000 in cash from the horse race. On such a receipt, no TDS has been deducted. An amount of Rs 50,000 towards LIC is paid by him. He has no other income throughout the year.

Computation of Income: Amount

  • Income from Other Sources- 9,000
  • Total Income- 9,000
  • Tax @ 30% (special rate)- 2,700
  • Rebate u/s 87A- 2,500
  • Gross Tax- 200
  • Education Cess- 6
  • Tax Payable (excluding rounding off and interest u/s 288, if any)- 206

Example: Mrs. E wins Rs 3,00,000 cash from the betting. On such a receipt, a TDS of Rs 90,000 has been deducted. She has no other income throughout the year.

Computation of Income: Amount

  • Income from Other Sources- 3,00,000
  • Total Incomes- 3,00,000
  • Tax @ 30% (special rate)- 90,000
  • Rebate u/s 87A- 2,500
  • Gross Tax – 87,500
  • Education Cess- 2,625
  • Total Tax- 90,125
  • D.S.- 90,000
  • Tax Payable (excluding rounding off and interest u/s 288, if any)- 125

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