Many organisations launch lotteries and schemes during the festive season. We also see entertainment programmes on television giving away prize money to winners. Prizes could vary from a few thousand rupees to expensive cars, gifts, pens, watches, etc.
It is important to understand whether the prize money received (in cash or kind) will have any tax implications for the person receiving it and also for the payer/sponsor of the scheme.
According to the provisions of the Income Tax Act, 1961, where the total income of a taxpayer includes any income by way of lotteries, crossword puzzles, horse race, card game and other games of any sort or from gambling or betting, the same will be taxable at a flat rate of 30%.
Surcharge and cess will be additional, as applicable. Therefore, if an individual receives any prize, it will be liable to tax. No deductions can be claimed for expenditure incurred in winning this prize.
Incomes from game shows, entertainment programmes on television or any other electronic mode where people compete and win prizes will be included. A lottery will include prizes that come by draw of lots or by chance or in any manner of a scheme.
Incidentally, the person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle for an amount exceeding R10,000 is required to deduct income-tax thereon at the rates in force, currently being 30%, at the time of payment of such money. Thus, the payer is also responsible to deduct tax at source before giving the award.
A dilemma faced is whether the tax liability should be withheld if winnings are in kind or a combination of cash and kind. The answer is that tax has to be deposited on distribution of such a prize. Thus, where winnings are wholly in kind (or partly in cash and partly in kind and the cash portion is not sufficient to meet the tax liability), then the person responsible for paying such winnings has to ensure that tax has been paid in respect of the same.
Therefore, an obligation has been cast on the payer, irrespective of whether the winnings are in cash or in kind, to ensure that the tax is paid before the winnings are released in cash or in kind. It is good to enjoy the prizes and awards if you are lucky. However, it is also necessary