Nowadays, there is a growing trend in the popularity of reality shows where participants can win large cash prizes. Reality programs Kaun Banega Crorepati (KBC), Fear Factor, Indian Idol, Roadies, Sa Re Ga Ma Pa, and Dance India Dance are popular and can guarantee to provide winners cash money, cars, houses, and other items. Nevertheless, lottery winnings being earned income are liable to tax and TDS is deducted prior to presentation of the cheque to the winner. In this blog, we will explore various taxation aspects of prize money and awards in India.
Differentiating between Awards and Prizes
Awards are recognition of some talents, abilities, feats or qualities in certain disciplines or areas of human endeavour, including sporting activities, movies, music, writing and learning institutions. They could be national or international and some of them are Bharat Ratna Award – Arjuna Award – Nobel Prize etc.
Prizes are gifts awarded for winning contests or games, including lots, races, or television shows. These generally could also include cash prizes or kinds such as cars or houses. The taxation rules depend on the nature of these two categories and the governing bodies of each category.
Tax Impose on Lottery and Game Show Winnings
According to Section 115bb of the Income Tax Act of India, winnings through lottery or game shows are charged at a flat rate of 30%. This tax is charged without regard to any lowest or highest amount or with special regard to any individual, business, profession or any other class of persons. There is a 4 percent health and education cess on this rate, raising the consolidated tax rate to 31.2%.
Budget 2024 Update
Winnings exceeding INR 50 lakh attract a surcharge:
- 10% for winnings between 50 lakhs INR and 1 crore INR.
- 15% for winnings above INR 1 crore.
This means that large winners or those who win large stakes are subject to higher taxes higher taxes.
Tax considerations for awards
Grants sanctioned by the Central or State Government are fully exempt from Income Tax under Section 10 (17A) of the Income Tax Act. Examples include:
- National Awards
- Bharat Ratna
- Govt rewards in the Olympics, the Commonwealth Games, and the Asian Games
If the awards are not granted by the Government or are being provided by a private party, they are taxable. These include:
- Wisden Cricketer Award
- ICC Cricket Awards
- Filmfare Awards
- Grammy Awards
In the case of taxable award, the income is income from other sources and the same is taxed at a rate of 31.2% irrespective of the income tax rate of the recipient. If the award is an award in specie, then the tax is payable on the value of what is received.
TDS on Prizes and Awards
Under Section 194B, TDS in relation to winnings has been made mandatory in the case where the winnings exceed ten thousand Indian Rupees. Since the case deals with TDS, it must be noted that the liability to collect and pay the stated amount lies with the prize allocating department. This net amount is credited to the winner’s bank account along with a Form 16A indicating the TDS deducted by the company when the winner is filing the income tax return.
Criteria | Details |
Applicable Winnings | Lotteries, game shows, crossword puzzles, online games, dancing or singing contests, etc. |
Threshold for TDS | Winnings exceeding INR 10,000 |
TDS Deduction Responsibility | Organization or individual paying out the winnings |
TDS Deposit and Documentation | Deducted TDS to be deposited with the government; Form 16A issued to the winner |
Example Calculation of Tax Liability
Let’s consider Anil, who wins:
- Cash prize: INR 2 lakh
- Car: Market value INR 10 lakh
- Salary income: INR 10 lakh
- FD interest income: INR 50,000
- Investments: INR 1.5 lakh under Section 80C
- Health insurance premium: INR 20,000
Tax on Winnings
Component | Amount (INR) |
Cash Prize Received | 2,00,000 |
Market Value of Car | 10,00,000 |
Total Taxable Winnings | 12,00,000 |
Tax @ 31.2% | 3,74,400 |
Tax on Regular Income
Salary Income | 10,00,000 |
Income from FD Interest | 50,000 |
Income from other sources (winnings) | 1200000 |
Total Gross Income | 22,50,000 |
Less: Standard Deduction | 50,000 |
Less: Section 80C | 1,50,000 |
Less: Section 80D | 20,000 |
Net taxable Income | 20,30,000 |
Tax Payable on Income | 78,500 |
Total Tax Liability | INR 12,500 plus 20% of INR 3,30,000 = INR 12,500 + INR 66,000 = INR 78,500 |
Income Tax Rules for Lottery and Game Show Winnings in India
Winning from a lottery or a game show falls under the category of “income from other sources” according to the Income Tax Act 1961. All the winnings are, therefore, subject to tax and are claimed on the person’s total income for the specific financial year.
- Tax Rate: This is charged at a flat rate of 30% under section 115BB plus a 4% health and education cess, making it 31.2%. Other conditions which pertain include the following: no exceptions or deductions are admissible.
- TDS (Tax Deducted at Source): TDS is deducted at 30%, in terms of winnings more than INR 10,000 under Section 194B.
TDS certificate is issued by the payer to the winner.
For horse race winnings, TDS is attracted if the amount is over INR 10,000.
- Reporting and Filing: The winners are supposed to report their winnings taxation return as the “income from other sources”, though they will be strained to taxation only in a case if the total sum of the activity exceeds the norms of taxation.
- Documentation: To support verification, winners should put copies of winnings and TDS certificates for taxation and audit.
Therefore, understanding the provisions of such prizes enables the winners to know how they can be compliant legally in the management of their tax implications.
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Frequently asked questions
Q: Who deducts TDS on winnings?
The party awarding the prize (for instance show promoters, lotteries) withhold TDS before disbursing the prize.
Q: Do winnings attract individual tax slab rates?
No, lotteries are taxed at a flat rate of 31.2%, and it does not matter what income slab the winner belongs to.
Q: When are awards tax-free?
Awards are exempt from tax only if they are approved by the central or state government under section 10(17A) of the Income Tax Act.