Question: What are the income-tax implications of winnings from any lottery, puzzle or horse racing?
Answer given by CA (Dr.) Suresh Surana: Section 115BB of the Income Tax Act, 1961 (hereinafter referred to as “IT Act”) provides that where the total income of a taxpayer includes any income by way of winnings from any lottery, crossword puzzle, race including horse race (not being income from the activity of owning and maintaining race horses), card game or other game of any sort or from gambling or betting of any form or nature, then such income shall be taxed at the rate of 30% (Plus applicable Cess and Surcharge, if any).
Please note that 30% is a flat rate of tax which the taxpayer would be subjected to irrespective of the total income being less than the basic exemption limit. It is also pertinent to note that section 58(4) of the IT Act restricts deduction of any expense in relation to such income. Thus, the whole of such income will be taxed in the hands of the taxpayer.
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Further, TDS on the same shall be deducted at the aforementioned rates u/s 194B (lottery, crossword puzzle, race etc. w.r.t. section 115BB). TDS u/s 194B shall be deducted if the aggregate amount received during the financial year exceeds Rs10,000.
If the winnings are entirely in kind or partially in cash and partially in kind, but the cash portion is insufficient to cover the tax deduction, the distributor of the gifts must ensure that the tax on the winnings has been paid before distributing them.
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