Income Tax Implications on Online Games, Housie, Winning from Show, Lottery & Gambling

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Income Tax Implications on Online Games, Housie, Winning from Show, Lottery & Gambling

Money won is twice as sweet as money earned.
Online Housie, Rummy, MPL, Dream 11, all types of fantasy games, Mobile App, TV Channels, Newspaper, Malls, Petrol Pumps, everywhere there are offers, lucky draws, etc to win the prizes. This is further augmented during the period of lockdown & covid. Offers vary from cash to gold, mobile to car, Home accessories to electronic items. KBC, Indian Idol, Big Boss, Dance India Dance, etc are various shows which also offer heavy price or award money to the winners. Further, it could be in the form of a lottery, lucky draw, quiz, & competition which also offer prizes to the lucky winner.
With money, emerges the question of its taxability. 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”:-
  1. Lotteries
  2. Crossword Puzzles
  3. Races including Horse Races
  4. Card Games and other Games of any sort
  5. Gambling or Betting of any form or nature whatsoever
Tax Implications of Such Income:
  1. Finance Act 2001 has clarified that ‘Card Games and other games 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 involve good use of knowledge, still income earned from such participation would be taxable & is required to be disclosed in the income tax return as “Income from other source”.
  2. All such income is chargeable to tax u/s 115BB at a flat tax rate of 30% which is to be further enhanced by cess of 4% resulting in ultimate tax liability @ 31.20%.
  3. 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 a case and income would be taxed at a flat rate of 31.20%.
  4. 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.
  5. It may be noted that that no deduction in respect of any expenditure or allowance in connection with such income shall be allowed while computing such income. [Section 58(4)]. In other words, the entire income of such winnings is taxable without deduction towards any expenditure & allowance.
  6. No deductions under Chapter VI-A i.e., deductions from Section 80C to Section 80U are also not available against such income.
  7. A question arises as to the year in which such income is taxable? In case the taxpayer is not maintaining 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)]
  8. If the prize money awarded is more than Rs. 10,000/- then TDS @ 31.20% (plus applicable surcharge, if amount exceeds Rs. 50 Lakh) is deductible by the payer u/s 194B. The prize money is required to be offered to the winner after doing TDS @ 31.20%.
  9. 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. For example, a person has won the car in a lucky draw. In such a case, the amount of TDS would be required to be paid separately by the person conducting the lucky draw.
  10. 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.
In short, the prize money will be considered as separate income and regular income will be taxable separately as per applicable tax slab.
For example 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.
[Readers may forward their feedback & queries at nareshjakhotia@gmail.comOther articles & response to queries are available at www.theTAXtalk.com ]
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