Introduction to Section 194B:
Under Section 194B of the Income Tax Act, TDS (Tax Deducted at Source) will be deducted if income is earned from winning lotteries, crossword puzzles, card games, quiz shows, online gaming or dance competitions. However, the winnings from such games must exceed Rs. 10,000.
If you have won a game, competition or a lottery, here’s what you must know about Section 194B – provisions of Section 194B, who deducts TDS, how to calculate the TDS amount and the penalty for not paying TDS
Section 194B of the Income Tax Act:
- As per Section 194B, a person responsible for paying winnings of lotteries, crossword puzzles and other similar games must deduct income tax before making the payment. This is applicable only when the winnings exceed Rs. 10,000.
- Currently, a flat TDS (Tax Deducted at Source) of 30% is applicable on winnings over this limit.
- The total income tax charged becomes 31.2% after factoring in surcharge and cess. The company or organisation distributing prize money is responsible for deducting TDS.
- There can be cases where the winnings are fully in kind or partly in kind and cash.
- If the cash balance is not sufficient to deduct TDS, the payer is responsible for withholding winnings till the payee pays him the equivalent amount in cash.
- Alternatively, the payee can pay applicable TDS and submit proof of payment to the payer.
Applicability of Section 194B:
Persons paying winnings of lotteries, TV shows, and online games must collect the TDS amount at the time of payment and deposit it to the government. Given is a list of sources for which a flat tax rate of 31.2% is applicable:
- Lottery (online and offline)
- Crossword puzzles
- Race betting
- Card games
- Gambling (online and offline)
- TV shows, including game shows, quiz shows, singing competitions etc.
- Fantasy sports
- If you have received a gift in kind, such as a flat or a car, you have to pay a 31.2% TDS before taking possession of the gift. However, in some cases, a company distributing such gifts may choose to take the TDS liability.
Who Deducts TDS under Section 194B?
The person paying the prize money to a person winning by means of a lottery, crossword puzzle, game shows, dance competitions, etc. is eligible to deduct TDS if the amount exceeds Rs. 10,000.
Example-1
Let’s say Mr. Santosh, has won Rs. 3,00,000 from a game show. His taxable income from salary is Rs. 8,00,000 after factoring in all tax deductions. TDS on his winnings will be Rs. 93,600(31.2% of Rs. 3,00,000) while tax liability on the rest of his earnings will be as per the applicable tax slab rates.
Example-2
Mr Pratyush won the first prize in a lottery ticket and the prize was a Maruti car worth Rs: 10 lakhs. What is the procedure to be adopted before handling over the Maruti car to Mr Pratyush ?
Solution:
Section 1948 provides that the person responsible for paying to any person, any income by way of winnings from any lottery or crossword puzzle, card game or any other game of any sort and the amount of winning exceeds 10,000, tax shall be deducted at source@30%.
However, in case where the winning is wholly in kind, the person responsible for paying the prize shall before releasing the winning, ensure that the tax has been paid in respect of such winning.
Due date of TDS deposit and Filing of TDS returns:
The Deductor is liable to deposit TDS with the Government with following dates
| Particulars | Due date of Deposite |
|---|---|
| April-February | 7th of Next following next Month |
| March month | 30th April |
The Deductor is liable to File TDS Returns with the Government with following dates
| Quarter | Due Date for Return |
|---|---|
| April to June | 31st of July |
| July to September | 31st of October |
| October to December | 31st of October |
| January to March | 31st of May |
Note about TDS under Section 194B:
- The full 31.2% TDS is applicable regardless of a taxpayer’s tax bracket.
- No income tax deductions can be claimed to reduce winnings from lottery or crossword puzzles.
- When you get a prize in both cash and kind, TDS is deducted from the cash winnings.
- If you receive the prize money in instalments, a TDS deduction will take place when the payer pays such instalments.
- Winnings from online games are also included in this section.
- Participants and players in these games will need to provide their PAN and bank account details to the company holding such events.
- You cannot claim refunds against TDS payment u/s 19B.
FAQs
Q1. What is the difference between Section 194B and 194BB of the IT Act?
Ans: While Section 194B deals with winnings from lotteries, crossword puzzles, card games, etc., Section 194BB deals only with winnings from a horse race. From 2020, flat 30% TDS plus surcharges are applicable on winnings above Rs. 10,000.
Q2. What are the taxes applicable for lottery income of Rs. 1 crore in India?
Ans: Winnings from a lottery have a flat 31.2% TDS applicable, including surcharge and cess under Section 194B. So, winnings of Rs. 1 crore will have Rs. 31.2 lakh TDS applicable u/s 194B (31.2% of Rs. 1,00,00,000).
Q3. Can you claim a refund on taxes paid for lottery winnings?
Ans: No, the TDS paid for winnings from lotteries and game shows are non-refundable. Usually, taxpayers can claim a refund if the TDS deduction is more than their tax liability in an assessment year. That said, for lottery winnings, you cannot claim any refund.
Q4. Do you have to pay TDS for the payment of commission to lottery agents?
Ans: No, if you have paid any bonus to commission to lottery agents or sellers of lottery tickets, you do not have to pay TDS on it. Taxes deducted u/s 19B will apply after deduction of such bonus and commission from your winnings.
Q5. How will the TDS deduction work in case I win a car worth Rs. 10 lakh through a lucky draw?
Ans: For winnings in kind or gifts, you have to pay the applicable TDS before receiving such presents. If you win a car worth Rs. 10 lakh, you have to pay Rs. 3,12,000 (31.2% of Rs. 10,00,000) out of your own pocket.
Q6. Which types of payments are not eligible under section 194B?
Ans. The following types of payments are not eligible for TDS under Section 194B:
- If a certain percentage has to be paid to the Government or to the lottery agent, then such amount will not be eligible for TDS.
- If an agent receives prize money on unsold tickets or unclaimed prize, then it becomes part of his business income which is not eligible for deduction under Section 194B.
- Payments made to lottery agents in form of commissions will be eligible for tax deduction under Section 194G and not 194B.
