Under Section 194B of the Income Tax Act; 30% tax is deducted on any prize money and other winnings from games, lotteries, etc. which exceeds Rs. 10000. 3% education and SHEC is also payable on the tax amount. Any person liable for paying any income by way of winnings from any lottery or crossword puzzle; has to deduct tax at the time of payment, if the amount is more than Rs. 10000. But there is no tax deduction under this section from any payment made before the 1st day of June 1972.
Section 194B & 194BB of Income Tax Act
An assessee must include this prize money under the head “Income from Other Sources” while filing ITR; and shall submit TDS certificate as a proof of tax payment against the prize money. Tax liability is calculated after taking credit for the TDS amount deducted from source. Further, the managers of such lottery or betting, have to submit the details of such payments in Form 26Q; and file this return with PAN details of a person winning such lottery or betting; along with the amounts won and TDS deducted.
Income tax deducted on such prize money is non-refundable. Also, this section does not allow any deduction under chapter VI-A (section 80C to 80U) or any other deductions for any such income.
If the prize distributor awards prizes in kind, then he has to ensure that the receiver has paid tax in respect of the winnings; before giving any such prizes. Prize distributor can recover it from the winner, and if not; he is liable to deposit TDS by himself. However, if the prizes are in cash and kind partly, he must deduct the tax from the total value of the cash and kind from the cash. In case the cash is insufficient to meet the TDS liability; the winner or the prize distributor is liable to the pay the deficit.
There is a tax deduction at the time of making payment. Thus, if the prize distributor pays prize in installments, there is TDS deduction at the time of each installment. But remember that the exemption limit is Rs. 10000 per winning and not per payment. The prize distributor shall deduct TDS irrespective of the fact whether the amount he pays to a resident or non-resident.
Section 194BB of the Income Tax Act, 1961
Income Tax Act has not only restricted the deduction of TDS to winnings from lotteries, crossword puzzles, card games or any other games; but also it covers any income by winnings from horse races, an entertainment program, gambling, betting, etc.
Section 194BB covers the provisions related to winnings from horse races or betting or any other case. As per this section, any person, being a bookmaker or to whom the government under any law grants a license for horse racing in any race course; or for arranging for wagering or betting in any race course; is liable to deduct 30% TDS on any income which he pays to any person, by way of winnings from any horse races, at the time of payment, if the amount exceeds Rs. 10000.
3% education and SHEC is also payable on the tax amount along with 30% TDS and surcharges. In case if, any TDS is deducted earlier under this section or any other section along with advance tax paid or any self-assessed tax paid, it will be adjusted to the net amount of tax liability for the relevant FY.
Under section 203 of the Income Tax Act, 1961, it is mandatory for an organization or a person conducting the lottery or any type of legal betting/gambling, to issue the TDS certificate to the winner within one month from the end of the month in which it gives credit, or pays the sum.
Section 276B of the Income Tax Act, 1961 covers the rules in case of failure of TDS credit to the Central Government within the prescribed time. It requires the prosecution of an organizer deducting TDS for a term between 3 months to 7 years along with monetary fine.