Section 194B of Income Tax Act, 1961: Prize, Betting, Lottery Winning Tax

Introduction

In the present day, there is a wide range of game shows, including the popular Kaun Banega Crorepati (KBC) and Fear Factor, as well as reality shows like Indian Idol, Roadies, Sa Re Ga Ma Pa, and Dance India Dance. These shows offer substantial prize money, often in the millions, along with prizes such as houses or cars. However, it’s important to note that the full amount of winnings does not go directly to the winners. In this article, we will learn all about 194B of the Income Tax Act, 1961 including the tax rate on lottery winning, the penalty for non-filing TDS online for lottery winning tax, and more.

What is Section 194B of the Income Tax Act, 1961?

Section 194B of the Income Tax Act, 1961 establishes that if the earnings from various sources, such as lotteries, game shows, card games, online games, crossword puzzles, quiz shows, dance competitions, and more, exceed ₹10,000, a TDS (Tax Deducted at Source) of 30% will be applicable.

The applicability of Section 194B extends to the winnings or prizes obtained from the following activities:

• Lotteries (both online and offline) and raffles.
• Sweepstakes.
• Crossword puzzles.
• Betting (both online and offline).
• Card games.
• Gambling (both online and offline).
• TV shows, encompassing game shows, quiz shows, singing competitions, dance competitions, and similar events.
• Fantasy sports.

Who is responsible for deducting tax under Section 194B?

The responsibility of deducting tax under Section 194B lies with the entity making the payment, typically the organizer of the lottery, crossword puzzle, game shows, dance competitions, and similar events. This obligation arises when the value of the prize or earnings surpasses ₹10,000.

Rate of TDS under Section 194B

The deduction of TDS under Section 194B of the Income Tax Act occurs at the time of payment for winnings obtained from game shows, lotteries, TV shows, crossword puzzles, and similar sources. If the winning amount is disbursed in installments, TDS is deducted on each installment at a proportionate rate. Regarding the rate of TDS under Section 194B, it stands at 30% of the actual winning amount or value. After factoring in the surcharge and cess, the final applicable tax deducted at source becomes 31.2%.

If the winning is wholly in kind or it is partly in kind & partly in cash and the cash balance is not sufficient enough to meet the TDS liabilities, then the payer shall release the prize only if either:

• He has collected the amount equivalent to TDS amount from the payee.
• He insists the payee make the payment of TDS on his own & submit the proof to the payer.

Important Points Regarding TDS Under Section 194B

1. TDS online is levied in full, at a rate of 31.2%, regardless of the winner’s tax bracket.
2. No deductions for income tax can be claimed on the winning amount.
3. When a prize consists of both cash and non-cash components, the Tax on whole prize (i.e. aggregate of cash and value of prize in kind) is deducted only from the cash prize.
4. In case of prize money paid in installments, TDS online is deducted at a proportionate rate on each installment.
5. Participants and players must provide their PAN (Permanent Account Number) and bank account details to the organizer.
6. Refunds cannot be claimed for TDS payments made under Section 194B.
7. If the prize is in the form of a gift, such as a car or a holiday package, the organizer has the right to hold the winnings until the winner fulfills their TDS obligations or provides proof of TDS payment directly.

Conclusion

Section 194B of the Income Tax Act, 1961 mandates a Tax rate of 30% on winnings exceeding ₹10,000 from games, TV shows, quiz shows, betting, etc., regardless of the winner’s income tax bracket. It is important to note that these winnings cannot be combined with the recipient’s regular income.

Also Read: Section 194EE of the Income Tax Act,1961