The provisions governing the Income-tax are covered 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 it is applicable to both resident and non-resident winners.
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It is important to note that the tax is deducted at source by the entity awarding the prize money or lottery winnings. Therefore, the winner receives the amount after deducting the tax at the applicable rate.
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What is income-tax?
It is a tax levied by the Government of India on the income of every person. The provisions governing the Income-tax are covered in the Income-tax Act, 1961.
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Who is supposed 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) covers in its ambit natural as well as artificial persons.
For the purpose of charging Income-tax, the term ‘person’ includes Individual, Hindu Undivided Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms, LLPs, Companies, Local authority and any artificial juridical person not covered under any of the above.
Thus, from the definition of the term ‘person’ it can be observed that, apart from a natural person, i.e., an individual, any sort of artificial entity will also be liable to pay Income-tax.
If you win a lottery or prize money in a competition, do you need to pay income-tax on it?
Yes, according to the Income Tax Act, such winnings are liable to flat rate of tax at 30% without any basic exemption limit. In such a case the payer of prize money will generally deduct tax at source (i.e., TDS) from the winnings and will pay you only the balance amount.
The money received is taxable under the heading “Income from Other Sources”.
Section 194B of the Indian Income Tax Act, 1961 deals with the TDS on lottery winnings, card games, TV shows, crossword puzzles etc..
According to this section, any person who is responsible for paying any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in an amount exceeding Rs. 10,000 is required to deduct TDS at the rate of 30% before making the payment to the winner.
Apart from the above rate, after adding surcharge and cess, the applicable TDS becomes 31.2%.
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It is important to note that failing to pay the applicable taxes on lottery or prize money winnings can result in penalties and legal consequences. Therefore, it is advisable 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:
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a) voluntary payment by taxpayers into various designated Banks. For example, Advance Tax and Self Assessment Tax paid by the taxpayers,
b) Taxes deducted at source [TDS] from the income of the receiver, and
c) Taxes collected at source [TCS]. It is the constitutional obligation of every person earning income to compute his income and pay taxes correctly.
