Section 194B of Income Tax Act - TDS On Winning Lottery

Dance competitions, online gaming platforms, evergreen quiz shows, or any other events give way exciting winning amount to the winners. However, have you ever wondered what happens if you win at such a game show? To start with, you will have to know about the tax outgo on such wins even before you get the money in your account.

As per section 194B of the income tax act, all the winnings over and above Rs 10,000 will be subject to a TDS of 30%. With cess and surcharge, the effectual rate will be 31.2%. This TDS is supposed to be deducted by the company or organisation distributing the prize money.Income from the following sources will be subject to a flat TDS of 31.2%.

• Game Shows or any such shows on electronic media
• Online Gaming
• Lottery (both online and offline)
• Gambling (Both online and offline)
• Race Bettings
• Puzzles (Crossword puzzles)

There are a few important points to note

• No Tax Refund on the TDS: Usually, the taxpayers are subject to a tax refund in case the TDS portion is more than their tax liability for a particular financial year. However, in the case of such winnings, taxpayers cannot claim any refund against this TDS amount.
• No Deductions on the Winnings: Usually, a taxpayer can claim deductions under Section 80D or 80C to reduce the taxable income and hence tax liability. However, no such deductions can be claimed to reduce the winnings. A TDS of 31.2% is charged irrespective of the deductions you are eligible for.
• The Income Earned: While the income tax liability on your regular income would depend on the tax-slab you are part of, all the winnings from lottery and game shows attract a non-refundable TDS of 31.2%.  Thus, whether you come in the nil bracket or the highest “30%” tax slab as per your taxable income, all the winnings will attract a flat TDS of 31.2%.

For gifts received in-kind such as a car or a flat, a TDS of 31.2% will have to be paid by the receiver before taking the possession of such a gift. For instance, if you won a car worth Rs 5,00,000 in a lucky draw, you will have to pay a TDS of 31.2% on the car, which is 1,56,000. In some cases, the company distributing such a gift may choose to absorb the TDS liability.

For tax purposes, income from such game shows is counted separately than the rest of the income. Thus, the tax liability on the rest of the income is calculated separately as per the taxable income, deductions, and the income tax slab. Let us understand this with an example. Let's assume, Ravi won Rs 5,00,000 from a quiz show, and his income from his salary is Rs 15,00,000 after all the deductions. His tax outgo in that year will be in two parts. The first is the TDS on winnings under section 194B, of Rs 1,56,000 (5,00,000 X 31.2%). The second will be his tax liability on his taxable income of Rs 15,00,000 as per his income tax slab. Winnings from such game shows and lotteries come under “Income from Other Sources” in your tax returns. While you have to let go 31.2% of your earnings in case the wins are more than Rs 10,000, the income received after TDS is not taxed again.

Online rummy, poker, and other games with real money have recently seen a real-time increase in popularity. Since individuals have started purchasing smartphones and personal computers, which provide them with the freedom and capacity to live in this brand-new virtual world full of opportunities, the online gaming market has experienced phenomenal growth.While players like playing cards, poker, as well as sports games, to mention a few, for the thrill, businesses see it as an opportunity for significant profits. This has also given the participants the chance to investigate a brand-new avenue for making money while relaxing in their homes. Today, a lot of people choose to become professional gamers. Tax must also be incorporated in this situation because making money is a factor. TDS or Tax Deducted at Source shall be deducted in accordance with Section 194 B of the IT Act if income is received through winning crossword puzzles, card games, lotteries, quiz shows, dancing and singing contests, and Internet gaming. However, the profits from these games must be greater than Rs. 10,000.If you've won games, contests, or lottery, then you should be aware of Section 194 B's requirements, who is in charge of deducting TDS, how to calculate how much TDS to deduct, and the repercussions of not doing so.Section 194 B requires that income tax be withheld from a lottery, crossword, and other comparable game winnings before they are paid out. This is only valid after the winnings reach Rs. 10,000.
On winnings above this amount, a TDS of 30% is now applicable. After surcharge and cess are taken into account, the total income tax charged is 31.2%. The business or organisation that distributes prizes is in charge of withholding TDS.

Lottery and game show winnings are calculated differently from your other income. These gains are classified as "Income from other sources."
It's important to include online game tax while filing income taxes. Take a look at the example below:Mukesh has a yearly income of Rs. 2 Lakhs and has made Rs. 30,000 from playing video games online. His income is less than the minimum exemption amount of Rs. 2.5 Lakhs.
Mukesh must nevertheless pay 31.2% in taxes, including cess, on Rs. 30,000. However, beyond that point, no expense or deduction will be permitted to be allocated to incomes like these. It should be noted that if the prize money goes above and beyond Rs. 10,000, then the organisation giving it would be compelled to deduct TDS. In accordance with Section 194 B of the IT Act, this deduction will be 31.2%.Keep in mind that the beneficiary must disclose the TDS amount when submitting the yearly Income Tax Return .The government should pay more attention to TDS in online games. For instance, Manish just won a camera valued at Rs. 120,000 in an online gaming contest. Before awarding the reward to the winner, the distributor of the prize must pay the 31.2% tax levied on the camera. Either the distributor will pay the tax or obtain it from the winner.Keep in mind that the total tax should be computed on the cash amount and the market value of the tangible object presented as a reward if the award is made in the form of cash or another tangible thing. The tax amount must be subtracted when awarding the winner with the cash portion of the prize. The distributor of the prize or the winner shall be responsible for covering any shortfall if the cash award is insufficient to satisfy the entire tax liability .

1. Regardless of a taxpayer's tax bracket, the entire 31.2% TDS is levied.
2. No income tax deductions may be made to offset lottery and crossword puzzle winnings.
3. TDS is deducted from financial winnings when you get both cash as well as rewards.
4. If the prize money is paid to you in instalments, then TDS will be deducted when the payer makes those payments.
5. Online gaming winnings are also incorporated into this category.
6. The company hosting such activities will require PAN as well as bank account information from players and participants in these games.
7. Refunds for TDS payments made under Section 194 B are not available.

No, the TDS paid on winnings from the lottery and game shows cannot be transferred. When the TDS deduction surpasses the taxpayer's tax liability for a certain assessment year, the taxpayer is typically entitled to a refund. In spite of this, TDS paid on lottery winnings cannot be returned.

Section 194 BB deals only with earnings from horse races, whereas Section 194 B covers winnings belonging to crossword puzzles, lotteries, and card games, to name a few. On prizes beyond Rs. 10,000, a flat 30% TDS plus surcharges have been levied since 2020.

You must pay the appropriate TDS before receiving any gifts or prizes in kind. If you win a car valued at Rs. 10 Lakhs, then you must pay 31.2% of that amount, or Rs. 3,12,000 in this situation. You must pay this amount out of your own pocket.

According to Section 194 B, the following forms of payments are not subject to TDS:
In case an agent receives prize money from unsold tickets or unclaimed prizes, then it is considered his/her business income. Therefore, it is ineligible for a Section 194 B deduction.
The tax code's Section 194 G, not Section 194 B, will be used to levy tax on lottery agents.

1. Is winnings from a lottery considered taxable under the income tax laws? Under Section 194B, any person winning the lottery, any game, or a crossword puzzle has to deduct income tax. exemptions are given if the winning amount is less than Rs. 10,000. While filing the income tax return, the prize money won must be disclosed under ‘income from other sources.’ the winner of the lottery must also submit the TDS certificate as proof that all the taxes due against the prize money are paid.A flat 30% TDS is deducted at the time the winning amount is disbursed to the winner. with cess and surcharge, the actual rate for non-refundable TDS deduction will be 31.2%. It does not consider which slab rate the person's income falls into. if the prize money is paid in instalments, then TDS is deducted at the time each instalment is paid.
2. How is the tax on winnings from game shows calculated? Under Section 194B/194BB of the Income Tax Act, before distributing the winning amount to the winner, the TDS needs to be subtracted from the winning amount. However, if the winning amount is less than Rs. 10,000, then it is exempted from TDS.If the winning prize is in kind (car, mobile etc.), then the prize distributor has to make sure that the tax is paid (as per the market value of the prize) before handing it over to the winner. This can either be recovered by the winner, or the prize distributor can bear the tax liability, and TDS (31.2% of the amount) can be deposited by the distributor.If the winning prize is in cash and kind, then the total tax will be calculated on the cash prize as well as the market value of the prize given in kind. while given the tax portion, the tax should be deducted. In case the cash prize is less than the total tax liability, then the deficit has to be borne by the prize distributor or the winner.
3. Are online gaming winnings considered taxable in India? The tax laws for winning from games and lottery were made when online gaming was not prevalent. Over the last 10 years, the online gaming industry has seen a massive evolution. The reason for online games can be attributed to smartphones and tablets. The online gaming industry has witnessed massive growth. Real money and prizes are involved in it.Section 115BB of the Income Tax Act deals with the provision of any sort of income earned in online gaming. A person who has won an online game should file it under the heading ‘income from other sources’ while filing income tax.Winning from online games is taxed at 30%, excluding cess. This amounts to 31.2% after adding cess and surcharge. The winner does not get any benefit from the basic exemption limit .If the prize is in kind, then the market value of the prize will be taxed. This can either be borne by the distributor or the winner depending upon the terms and conditions of the prize-winning.
4. What is the tax rate for winnings from lotteries and game shows? The tax rate for winning from lotteries and game shows is 31.2%, including cess. Out of this, a 30% tax is applied on winning the lottery and game show which have not received any government approval. The cess rate of 4% is applicable above 30%. The final tax rate becomes 31.2% {30% + (4% of 30%)}.
5. Are there any exemptions for tax on winnings from lotteries and game shows? Under Section 58(4), no tax deduction or exemptions can be availed by the person winning from the lottery and game shows. The prize money is considered separate from the regular income and will be taxable.No exemption or deduction is given even if the won prize money is invested in any saving instrument as mentioned under Section 80C to Section 80U. The only exception to paying tax is that the amount donated partially or wholly to the government is not taxable.
6. How should winnings from online gaming be reported for tax purposes? Online games are becoming more and more popular with the increase in the usage of smartphones, and many online games are easily available.The details of winning online games have to be submitted while filing income tax returns under Section 115BB of the Income Tax Act,1961. While filing IT returns, the income earned from online games should be filed under the heading ‘income from other sources’. The rate of 30% is taxed on winning an online game without cess. The net rate of tax, including cess, would be 31.2%. It is mandatory for winners to disclose the winning amount be it in cash or kind. The tax needs to be deducted at source by the gaming platform that is giving the winning amount to the winner. If the prize is in kind, then the market value of the prize has to be taken into account, and this is taxed.
7. Is TDS applicable on winnings from lotteries and game shows? If the prize money is less than Rs. 10,000, then the amount is exempted from tax. However, if it is more than Rs. 1,000, then a TDS deduction of 31.2% is applicable. This needs to be filled in Section 194B of the Income Tax Act. The prize distributor is liable to deduct tax and then hand over the winning amount to the winner. The winning amount is taxable even if the winner's regular income is not taxable. In some cases, the distributor of the prize amount only pays the tax, and this burden is lifted from the winner.
8. What is the time limit for reporting and paying taxes on winnings from lotteries and game shows? Section 194 B of the Income Tax Act states that the taxes have to be paid before dispersing the winning amount to the winner. The organiser or the distributor of the prize amount has to ensure that the tax is paid before handing over the prize money to the winner. This tax can be borne either by the distributor or can be deducted from the prize-winning amount of the winner.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.