Winning a lottery or a game show prize can be exciting, but it’s important to know that these winnings are taxable under the Income-tax Act, 1961. Popular shows, such as Kaun Banega Crorepati (KBC) offer huge prizes, but winners need to be aware that they won’t get the full amount as promised on the show because of the prevailing income tax rules.
Calculation Of Taxable Income
Under the Income-tax Act, 1961, winnings from game shows, lotteries, and similar activities are classified as “Income from Other Sources”.
According to Section 194B of the Act, tax is deducted at source (TDS) at 30 per cent on these winnings. The winners also have to pay a 1 per cent secondary and higher education cess, bringing the effective tax rate to 31.2 per cent. An extra 10 per cent fee is additionally applied if the prize money is above Rs 10 lakh, further reducing the winner’s take-home prize.
Taxation Of Lottery Winnings
Lottery winnings are treated similarly under the income tax laws. Any money or reward won through a lottery is subject to the same TDS of 30 per cent. When filing income tax returns, winners must include lottery winnings separately as “Income From Other Sources”.
For instance, if someone wins Rs. 40,000 through lottery, but only makes Rs. 10 lakh a year, TDS would be applied on the full prize money, which may result in unanticipated tax obligations.
Taxation Of Gaming Winnings
The rise in popularity of gaming has raised questions on the taxation of earnings from these activities.
Similar to lottery winnings, earnings from gaming activities, including online and offline competitions, fall under the same TDS regulations.
Under Section 194B of the Act, TDS is applicable on game winnings exceeding Rs. 10,000, thus ensuring that a portion of larger winnings is withheld for tax purposes. This rule intends to keep taxation transparent, while also allowing the government to collect dues more effectively.
So, before engaging in game shows or lotteries, it is essential to understand the tax ramifications.
Winnings over Rs. 10,000 are subject to TDS plus an extra cess, and are taxed separately from ordinary income. Thus, considering your tax requirements will help you plan for prospective winnings and avoid surprises when claiming your reward or prize money.
