Section 194B | TDS on Winning from Lottery & Gambling

Overview

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.

What is section 194B of Income Tax Act?

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.

Key Provisions Under Section 194B:

Winnings Covered Under Section 194B: Section 194B applies to winnings from:

• Lottery
• Crossword puzzles
• Card games
• Other gambling or betting activities

Threshold limit and Rate of TDS u/s 194B

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:

• The rate of TDS is 30% on the prize amount.
• This rate is applicable irrespective of the winner's income tax slab.
• The TDS is deducted before disbursing the winnings.

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.

Tax Treatment of Winnings

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.

How TDS is Deducted and Reported?

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.

Time to Deposit TDS u/s 194B

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:

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.

Important Points to Remember

• TDS Certificate: After the TDS deduction, the winner will receive a TDS certificate from the payer (Form 16A), which should be used when filing tax returns.
• Reporting in Income Tax Return: Even if TDS has been deducted, the winnings must be reported as income in the individual’s tax return under the head "Income from Other Sources."
• No Exemptions: There are no exemptions or deductions available for income earned from gambling or lottery winnings. It is fully taxable. The benefit of the basic exemption limit and income tax slab rate is also not applicable to this income.
• Tax liability of Winnings in Kind: Where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that Tax has been paid in respect of the winnings.
• Set-off of winnings: Where the winnings are to be credited and losses are to be debited to the individuals a/c, Tax has to be deducted on winnings before set-off of losses. Thereafter, the net amount, after deduction of Tax and losses, has to be paid to the winner.

Key Points of Section 194B:

• TDS rate under Section 194B is 30% on the total winnings if the amount exceeds ₹10,000.
• TDS is deducted at the time of payment (i.e., when the prize money is awarded to the winner).
• Threshold limit for TDS deduction is winnings above ₹10,000.

Example

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.

Why choose Bizfoc for TDS?

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:

• Assist in suggesting the right documents for TDS filing.
• Providing valuable insights on sections of TDS computations
• Prescribe forms as per the necessity
• Helps in accurate computations for TDS computations and returns
• Tailored advice and guidelines for TDS filing

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.

Conclusion

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.

Frequently Asked Questions? (FAQs)