Section 194BB | TDS on winnings from Horse Races

Overview

Horse racing has long been a popular form of entertainment and betting in India. However, like other forms of gambling or betting, the income generated from horse race winnings is subject to taxation. Section 194BB of the Income Tax Act, 1961, specifically governs the Tax Deducted at Source (TDS) on winnings from horse races. This section ensures that taxes are collected at the point of payment, preventing tax evasion and ensuring compliance with the Income Tax laws.

In this article, we’ll explain how TDS is applied to winnings from horse races, including the applicable TDS rate, when it’s deducted, and the filing process.

What is Section 194BB of the Income Tax Act?

Section 194BB of the Income Tax Act deals with the deduction of TDS on winnings from horse races. The section applies to any person who makes a payment in the form of winnings to an individual who wins a horse race. The payer, usually the organizer of the horse race or the bookmaker, is responsible for deducting the TDS at a rate of 30% before disbursing the prize money to the winner.

The key focus of this provision is to ensure that any income arising from horse racing winnings is taxed at the source itself, reducing the possibility of tax evasion.

Key Provisions Under Section 194BB

Winnings Covered Under Section 194BB: Section 194BB specifically applies to winnings derived from horse races. This includes:

• Cash prizes or other monetary rewards
• Any prizes (in kind or cash) won as a result of betting on horse races
• Prizes paid by horse racing clubs or other organizations involved in such events.

Threshold limit and Rate of TDS u/s 194BB

Threshold Limit for TDS: TDS under Section 194BB is applicable only when the amount of winnings exceeds ₹10,000. If the prize money or winnings from horse races is below this amount, the payer is not required to deduct any TDS. However, even if no TDS is deducted, the winner is still required to report the winnings in their income tax return.

Rate of TDS: The rate at which TDS is deducted from horse race winnings is 30% of the prize amount. This rate applies irrespective of the winner's overall income or tax slab.

Taxability of Winnings from Horse Races

Winnings from horse races are considered income from other sources and are taxable under Section 56 of the Income Tax Act.

Whether or not TDS is deducted, the winner must include the entire prize amount in their income tax return and pay taxes accordingly.

How TDS is Deducted and Reported?

When you win a prize in a horse race and the prize amount exceeds ₹10,000, the organizer or bookmaker will deduct TDS at a rate of 30%. The deducted amount is paid to the Income Tax Department on behalf of the winner.

The winner receives a TDS certificate (Form 16A) that specifies the amount of TDS deducted. This certificate should be used when filing your income tax return (ITR). If the TDS deducted is higher than the tax liability on the winnings, you may claim a refund by filing the ITR.

Time to Deposit TDS u/s 194BB

TDS on winnings from Horse Races, which is deducted u/s 194BB and is required to be deposited to the central government. Time to deposit TDS u/s 194BB 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

• No TDS if Winnings are Less than ₹10,000: If the prize from horse racing is below ₹10,000, no TDS is deducted, but the winner is still liable to report it in their income tax return.
• TDS Rate of 30%: The TDS rate on horse race winnings is fixed at 30%, Plus 4% Health and Education Cess regardless of the individual's income tax slab. This means even high-income individuals are taxed at the same rate on their horse race winnings.
• Winnings Must Be Reported: Regardless of whether TDS is deducted or not, horse race winnings must be reported in the income tax return as "Income from Other Sources" and are subject to tax.
• TDS Certificate (Form 16A): The winner should obtain the TDS certificate from the organizer or bookmaker. This document acts as proof of the tax deducted and can be used to claim any refund if applicable.
• 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.

Example: Horse Racing Winnings under Section 194BB

Let’s assume an individual wins a bet at a horse racing event.

1. Prize Amount:

Suppose the participant wins ₹12,50,000 from betting on a horse race.

2. TDS Deduction:

The prize amount is ₹12,50,000, which is above ₹10,000, so TDS will be deducted.
TDS Amount = 30% of ₹12,50,000 = ₹3,75,000.

3. Amount Paid to the Winner:

After the TDS deduction, the individual will receive the remaining prize amount.
Net Amount Paid = ₹12,50,000 - ₹3,75,000 = ₹8,75,000.

4. TDS Remittance:

The organizers of the horse race (or the betting entity) will remit the ₹3,75,000 deducted as TDS to the government on behalf of the winner.
The winner will receive a TDS certificate (usually in Form 26AS), which will reflect the amount of TDS deducted.

Conclusion

Section 194BB of the Income Tax Act ensures that winnings from horse races are taxed at source, providing transparency and helping to prevent tax evasion. The TDS on horse race winnings is deducted at a rate of 30% if the prize amount exceeds ₹10,000. Whether or not TDS is deducted, the winner must include these winnings in their income tax return and pay taxes accordingly.

If you're a winner of a horse race prize, it is essential to understand your tax liabilities, keep track of TDS deductions, and file your income tax return correctly. Always seek professional tax advice to ensure compliance with the tax laws and to avoid any penalties.

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.

Frequently Asked Questions? (FAQs)