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Updated on November 22, 2024 06:36:35 PM
Tax Deducted at Source (TDS) provisions in India are designed to collect tax at the very source of income. Section 194G, in particular, deals with the deduction of tax at source on commission or remuneration earned on the sale of lottery tickets. This provision ensures that taxes are collected on the income earned from lottery ticket sales, an area where individuals and entities may not always report their full earnings. In this article, we will delve into the key features of Section 194G, understanding who is responsible for deducting TDS, the rates of deduction, and the responsibilities of both the deductor and the deductee.
Section 194G of the Income Tax Act, 1961, specifically deals with the deduction of tax at source on income arising from the commission earned on the sale of lottery tickets. It mandates that the person (or entity) who is responsible for paying the commission or remuneration for the sale of lottery tickets must deduct tax @ 5% before making the payment. With effect from 1st October 2024, TDS u/s 194G will be deducted @ 2%. The objective of Section 194G is to ensure that taxes are collected on income from the sale of lottery tickets at the point of commission payment, preventing tax evasion in this highly cash-intensive business.
Section 194G, TDS on Commission on Sale of lottery tickets applies to individuals, Hindu Undivided Families (HUFs), companies, or any other entity that pays commission or remuneration for the sale of lottery tickets.
Who is liable to deduct TDS? The person responsible for paying the commission or remuneration is required to deduct TDS. This can include government agencies, lottery distributors, or any person who has authorized agents or dealers involved in the sale of lottery tickets.
To whom does the provision apply? The provision applies to the agents or dealers selling the lottery tickets who receive commission or remuneration from the sale. This commission can be earned by individuals, firms, or entities engaged in selling lottery tickets.
Under Section 194G, the TDS rate on the commission or remuneration earned by lottery ticket sellers is 5%. With effect from 1st October 2024, this rate has been proposed to be reduced to 2%. This rate applies to the amount of commission paid or credited to the seller. However, there are a few important considerations:
Threshold Limit for Deduction:
TDS is applicable only if the amount of commission paid or credited to the agent or dealer exceeds ₹15,000 in a financial year. If the commission is less than ₹15,000, no TDS needs to be deducted. This threshold is applicable to the aggregate commission paid during the financial year.
Lower/No Deduction of TDS:
If the seller has obtained a certificate for lower or nil deduction of TDS from the Income Tax Department under Section 197, the rate of TDS will be reduced as per the certificate issued.
Calculation of TDS under Section 194G (Before 1st October 2024)
The TDS amount is calculated based on the commission or remuneration paid to the seller. Let’s consider an example to understand the calculation:
Example:A distributor pays ₹1,00,000 as commission to a lottery ticket seller.
The applicable TDS rate is 5%. (Before 1st October 2024)
In this case, the TDS to be deducted would be:
TDS = ₹1,00,000 * 5% = ₹5,000.
Thus, the distributor would deduct ₹5,000 from the payment of ₹1,00,000 and remit it to the government. The seller of lottery tickets would receive ₹95,000 after TDS deduction.
Calculation of TDS under Section 194G (On or after 1st October 2024)
The TDS amount is calculated based on the commission or remuneration paid to the seller. Let’s consider an example to understand the calculation:
Example: A distributor pays ₹1,00,000 as commission to a lottery ticket seller.
The applicable TDS rate is 2%. (W.e.f. 1st October 2024)
In this case, the TDS to be deducted would be:
TDS = ₹1,00,000 * 2% = ₹2,000.
Thus, the distributor would deduct ₹2,000 from the payment of ₹1,00,000 and remit it to the government. The seller of lottery tickets would receive ₹98,000 after TDS deduction.
The TDS should be deducted at the time of credit or payment, whichever is earlier. If the payment is made before the commission is credited to the seller’s account, TDS should be deducted at the time of payment.
For Example:If the commission is paid on 15th December, TDS should be deducted on this date.
If the commission is credited to the seller’s account on 1st January, TDS should be deducted on this date.
TDS on Commission on Sale of lottery tickets which is deducted u/s 194D and is required to be deposited to the central government. Time to deposit of TDS on Commission on Sale of lottery tickets 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, Tax on Commission on Sale of lottery tickets is deducted on 15th December and needs to be deposited on or before 7th January. TDS on Commission on Sale of lottery tickets is deducted on 21st March ; needs to be deposited on or before 30th April.
If TDS is not deducted, or if there is any delay in deducting TDS, the insurer will be liable to pay interest. The rate of interest is 1% per month (for delay in deduction) from the date on which TDS was deductible until the date it is actually deducted.
If TDS is deducted but not deposited with the government within the prescribed time, interest at the rate of 1.5% per month is charged on the amount of TDS that remains unpaid.
A penalty under Section 271C can be levied for failure to deduct TDS, and it can be equal to the amount of TDS that should have been deducted.
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 194G plays a crucial role in the taxation of commissions earned from the sale of lottery tickets. By mandating the deduction of TDS at the source, it ensures that tax is collected efficiently and reduces the chances of tax evasion. Both the deductor (typically the lottery distributor or organizer) and the deductee (the commission earner) must be aware of their respective responsibilities to ensure compliance with the provisions of the Income Tax Act.
With the growth of the lottery industry, both in terms of popularity and financial value, TDS under Section 194G remains a vital tool for the government to collect taxes in this sector.
The person or entity paying the commission or remuneration for the sale of lottery tickets is responsible for deducting TDS. This could be the government, lottery distributors, or any other entity authorized to pay commission to agents or dealers for selling lottery tickets.
The TDS rate under Section 194G is 5% of the commission or remuneration paid to the seller of lottery tickets. With effect from 1st October 2024, TDS rate has been proposed to be reduced to 2%.
TDS should be deducted at the time of payment or credit of the commission, whichever occurs earlier. For example, if the commission is credited to the agent's account, TDS should be deducted on the date of credit.
The deductor (the person deducting the TDS) must remit the deducted TDS to the government within “7 days from the end of the month” in which the TDS was deducted. This can be done through the online payment system on the TRACES website.
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