The money received is taxable under the head Income from other sources. (Representational image)
The provisions governing income tax are contained in the Income Tax Act, 1961
In India, prize money and lottery winnings are subject to tax under the Income Tax Act, 1961. The tax rate on prize money and lottery winnings is 30% of the total winnings, and is applicable to both resident and non-resident winners.
It is important to note that tax is deducted at source by the prize money or lottery winning entity. Hence, the winner receives the amount after deducting tax at the applicable rate.
What is income tax?
It is a tax levied by the Government of India on the income of each individual. The provisions governing income tax are contained in the Income Tax Act, 1961
Who has to pay income tax?
Income tax is to be paid by every person, unless exempted by law. The term ‘person’ as defined under the Income-tax Act under section 2(3) includes within its ambit natural as well as artificial persons.
For the purpose of levy of income-tax, the term ‘person’ includes individual, Hindu undivided family [HUFs]association of persons [AOPs]body of persons [BOIs]Firms, LLPs, Companies, Local Authorities and any artificial juridical person not covered under any of the above.
Thus, it can be seen from the definition of the word ‘person’ that, apart from a natural person, a person, any kind of artificial entity shall also be liable to pay income-tax.
If you win any lottery or prize money in any contest, do you need to pay income tax on it?
Yes, as per the Income Tax Act, such winnings are liable to a flat rate of 30% tax without any basic exemption limit. In such a case the payer of the prize money will normally deduct tax at source (i.e., TDS) from the winnings and pay you only the balance amount.
The money received is taxable under the head “Income from other sources”.
Section 194B of the Indian Income Tax Act, 1961 deals with TDS on lottery winnings, card games, TV shows, crosswords, etc.
According to this section, any person who is liable to pay any income by way of winnings from any lottery or crossword puzzle or card game and other game of any kind in an amount exceeding Rs. Rs 10,000 is required to be deducted TDS at the rate of 30% before payment to the winner.
In addition to the above rate, after adding surcharge and cess, the applicable TDS becomes 31.2%.
It is important to note that failure to pay applicable taxes on winning lottery or prize money may attract penalties and legal consequences. Therefore, it is advised to consult a qualified tax professional for guidance on your specific situation.
How does the government collect income tax?
Taxes are collected by the government through three means:
a) Voluntary payment by taxpayers in various designated banks. For example, advance tax and self assessment tax paid by taxpayers,
b) Tax Deducted at Source [TDS] from the recipient’s income, and
c) Tax collected at source [TCS], It is the constitutional obligation of every person earning income to calculate his income and pay taxes correctly.
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