Updated on November 26, 2024 12:32:31 PM
Winning a lottery or a prize from a crossword puzzle, or other games of chance can be exciting. However, many are unaware of the tax implications that follow such winnings. Under Section 194B of the Income Tax Act, 1961, the government levies a Tax Deducted at Source (TDS) on the winnings from these games. This article aims to explain how TDS applies to lottery, crossword puzzle prizes, and other similar games.
Section 194B deals with the TDS (Tax Deducted at Source) on the winnings from various games such as lotteries, crossword puzzles, card games, and other gambling or betting activities. It mandates that any person (including organizations) who pays winnings from these activities must deduct TDS before releasing the payment to the winner.
The section is primarily aimed at ensuring that taxes are collected at the point of payment, preventing tax evasion.
Winnings Covered Under Section 194B: Section 194B applies to winnings from:
Threshold Limit for TDS: The TDS under Section 194B is applicable only when the amount of the winning exceeds ₹10,000. If the prize amount is below this threshold, no TDS is deducted, but it still remains taxable in the hands of the winner.
Rate of TDS:
No TDS if the Prize Amount is Below ₹10,000
If the winnings from lottery, crossword puzzles, or any other game are less than ₹10,000, the payer is not required to deduct TDS. However, the winner will still be liable to report and pay taxes on such winnings while filing their income tax return.
The winnings from these activities are considered income from other sources under Section 56 of the Income Tax Act and are taxable in the hands of the winner.
The winner can claim credit for the TDS deducted while filing their return of income.
When a prize is won, the payer (such as a lottery distributor or gaming operator) deducts the TDS at the prescribed rate and issues a TDS certificate (Form 16A). The winner must keep this certificate for reference when filing their tax returns.
It is also important to note that while TDS is deducted at the time of payment, the winner must still declare the total amount of winnings in their income tax return and pay the balance tax, if any, based on their total income for the financial year.
TDS on Winning from Lottery & Gambling, which is deducted u/s 194B and is required to be deposited to the central government. Time to deposit TDS u/s 194B is given below:
When TDS is deducted | When to deposit TDS |
---|---|
April - February | On or before 7th of next month |
March | On or before 30th April |
For example, TDS is deducted on 15th December and needs to be deposited on or before 7th January. Tax is deducted on 21st March ; needs to be deposited on or before 30th April.
Let’s assume that a participant wins ₹50,00,000 in Kaun Banega Crorepati.
Prize Amount: The total prize won by the contestant is ₹50,00,000.
TDS Deduction: Since the prize amount is above ₹10,000, TDS at 30% will be deducted by the game show organizers at the time the prize is paid out. TDS Amount = 30% of ₹50,00,000 = ₹15,00,000.
Amount Paid to the Winner: The winner will receive the remaining amount after the deduction of TDS. Net amount received = ₹50,00,000 - ₹15,00,000 = ₹35,00,000.
TDS Remittance: The game show organizers (or the producer of the show) will remit ₹15,00,000 to the government as TDS on behalf of the winner. The winner will receive a TDS certificate or Form 26AS showing the TDS deduction.
At Bizfoc, we specialize in providing you the best accounting services in filing your TDS. Here are the reasons why we are known for our services to our clients on filing TDS:
In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.
Section 194B of the Income Tax Act plays a vital role in the taxation of winnings from lotteries, crossword puzzles, and similar games. It ensures that taxes are deducted at the point of payment, making the process more efficient. While TDS is a convenient way for the government to collect tax, the winner is still responsible for reporting and paying taxes on these winnings in their income tax return.
If you're someone who wins such prizes, it’s essential to keep track of the TDS deducted and ensure that you report your winnings correctly in your tax returns to avoid penalties. Always remember to consult a tax professional for guidance on tax planning and filing your returns correctly.
Yes, even if the prize amount is less than ₹10,000 and no TDS is deducted, you are still required to report the winnings in your income tax return, and it will be taxed as income from other sources.
No, there are no deductions available for lottery or gambling winnings. The full amount is taxable as income under the head "Income from Other Sources."
Yes, TDS applies to the monetary equivalent of any prize, including non-cash prizes (like cars, gifts, etc.), where the value exceeds ₹10,000.