Money won is twice as sweet as money earned.
TV Channels, Newspaper, Malls, online marketing, Petrol Pumps, everywhere there are offers to win prizes. Offers vary from cash to gold to mobile to car to even house etc. KBC, Indian Idol, Big Boss, Dance India Dance, etc are various shows offering heavy price to the winner. Further, it could be in the form of lucky draw, quiz, & competition which are also offer prizes to the lucky winner.
Every flow of prize money carries tax implications with it. Under section 56(2)(ib) of the Income Tax Act-1961, income from any of the following sources is chargeable to tax as “Income from Other Sources”:-
- Crossword Puzzles
- Races including Horse Races
- Card Games and other Games of any sort
- Gambling or Betting of any form or nature whatsoever
Finance Act 2001 has clarified that ‘Card Games and other game of any sort’ includes any game show, an entertainment programme on television or electronic mode in which people compete to win prizes & other games of similar nature. Although some TV Shows involves good use of knowledge, still income earned from such participation would be taxable & is required to be disclosed in the income tax return.
Such income is charged to tax u/s 115BB at highest tax rate of 30% which is to be further enhanced by cess of 4% resulting in ultimate tax liability @ 31.20%. The benefit of income tax slab rates (i.e., 5% up to income of Rs. 5 Lakh, 20% for income between Rs. 5 to Rs. 10 Lakh etc) is not available in such case and income would be taxed at a flat rate of 31.20%. The winner cannot even claim the basic exemption of Rs. 2.50 Lakh, up to which no income tax is charged. Further, there is no minimum amount which is exempt from tax for such income.
Section 58(4) provides that no deduction in respect of any expenditure or allowance in connection with such income shall be allowed while computing such income. In other words, the entire income of such winnings is taxable without deduction towards any expenditure & allowance. Further, deductions under Chapter VI-A i.e., deductions from Section 80C to Section 80U is also not available against such income.
If a person earns Rs. 10 Lakh from a TV Show and earns Rs. 5 Lakhs as Income from Salary/Business/ any other source then such person would be required to pay tax as under:
– Tax on Rs. 10 Lakh @ 31.20% i.e. Rs. 3,12,000/- &
– Tax on Rs. 5 Lakhs as per the Income Tax Slab Rates after allowing for deductions. Although Income Tax Deductions u/s 80C etc are not available from Winning from such Game Shows, deductions would continue to be available on other income of Rs. 5 Lakhs.
A question arises as to the year in which such income is taxable? In case taxpayer is not maintain the books of accounts, it is taxable in the year in which it is received by the taxpayer and not the year in which it is declared [CIT Vs. M. Ramchandran (2000) 74 ITR 385 (Mad)]
If the prize money awarded is more than Rs. 10,000/- then TDS @ 31.20% (plus surcharge if amount exceeds Rs. 1 Cr) is deductible by the payer u/s 194B. The prize money is required to be offered to the winner after doing TDS @ 31.20%.In case the winner is being awarded a gift in kind, the payer would be required to estimate the value of such payment and then pay tax @ 31.20% either from his own pocket or after collecting it from the winner.
In short, the prize money will be considered as separate income and regular income will be taxable separately as per applicable tax slab.
There is no scope to plan & save tax on winning from such TV Shows/ Online Game Shows and the person earning the income would be required to pay tax on the total value of earnings.