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tax on prize money in india

How are winnings from TV game shows, KBC, lotteries taxed?

Everyone wants to become a crorepati and win lakhs and crores of prize money on TV game shows like KBC. However, have you ever wondered whether that prize money is tax-free or one has to pay some tax on that?

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Everyone in this world wants to become a crorepati and win lakhs and crores of prize money on TV game shows such as Kaun Banega Crorepati (KBC), Chappar Phad Ke, Khulja Sim Sim, and Dus Ka Dum, among others. If one has some singing or dancing talent, then one would like to be a winner of, say, Indian Idol or India’s Best Dancer.

However, have you ever wondered whether that prize money is tax-free or one has to pay some tax on that? And if one is required to pay tax on such winnings, then how much tax one has to pay? Is it as per the income tax slabs or is there a fixed rate for it? Here we are trying to find out the answers to these queries.

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According to tax experts, income by way of winning from lotteries, crossword puzzles, card games and other games of any sort, or from gambling or betting of any form or nature whatsoever is taxable under Section 56(2)(ib) of the Income Tax Act, 1961.

‘Other game of any sort’ includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes. “Accordingly, income from KBC TV shows and online gaming is taxable as ‘income from other sources’ under Section 56 of the I-T Act. Such income is taxable at a flat rate of 30% plus applicable surcharge and cess as per Section 115BB,” says Sudhakar Sethuraman, Partner, Deloitte India.

Thus, income from KBC, TV Shows and online gaming forms part of the Income from Other Sources and is taxable under the head Income from Other Sources.

“Provisions of Section 115BB of the Income Tax Act, 1961 govern the tax rate and the procedures. Under Section 115BB, a tax rate @ 30% + Surcharge (if applicable) + 4% Cess are charged on such income. Income from such winnings is liable to a flat rate of tax at 30% without any basic exemption limit. In general, the payer or disburser of prize money deducts tax at source (i.e., TDS) from the winnings under Section 194B and pays only the balance amount to the winner. No deduction of any expenditure or allowance in connection with such income is allowed while computing such income,” says Kapil Rana, Founder & Chairman, HostBooks Ltd.

It may also be noted that no benefit of basic exemption limit is allowed while calculating the tax dues on this income. Also, no deduction under chapter VI-A or for any expenditure can be claimed. Further, losses brought forward from earlier years cannot be set off against such income.

“Where the income exceeds Rs 10,000, the same is subject to tax withholding by the payer at the rate of 30% as per section 194B,” says Sethuraman.

In case the winning contestant is being awarded money in cheque, cash, DD (demand draft) or online transfer, among others, such payment will be made after deduction of tax at applicable rates.

Everyone wants to become a crorepati and win lakhs and crores of prize money on TV game shows like KBC. However, have you ever wondered whether that prize money is tax-free or one has to pay some tax on that?

Income tax rules on winnings from online gaming

  • The provisions of income earned from online gaming fall under section 115BB of the Income Tax Act
  • Winnings received in kind will be taxed on the the market value of the prize received in kind

Many seasoned gamers across the country were left disappointed when the government banned PUB-G, a multiplayer battle royal game. This isn’t the only game which went viral amongst millennials and others in India. Over the last 10 years, the online gaming industry has seen a massive evolution thanks to smartphones and tablets. Investments from major global players led to the rapid growth of the gaming industry, with nearly half the total global gaming revenues being from the Asia-pacific region.

Online gaming usually works on a subscription model. Most games are free to download, and users get charged only if they choose to access premium content and make in-app purchases. While certain games are played purely for the thrill of it, there are other games which offer players a chance to win real money. Some of the games in which players can earn real money include games such as poker, rummy, sporting games such as cricket and football, quizzes, and battleground games. The fact that any person can earn money from online gaming has been an incentive for the younger generation to become ardent gamers.

So how are winnings from online gaming taxed in India? The provisions of income earned from online gaming fall under section 115BB of the Income Tax Act. This comes under the head ‘Income from Other Sources’ while filing income tax returns. It includes winnings from betting, gambling, card games or any other games. Hence, winnings from online gaming also fall under this category.

Winnings from online gaming are taxed at a flat rate of 30%, excluding cess. The net rate after cess amounts to 31.2%, without the benefit of the basic exemption limit. It is to be noted that the person paying out the prize money needs to deduct tax at source before distributing the winnings. This is a TDS provision laid down under section 194B and is applicable only if the winnings exceed ₹ 10,000. No deduction or expenditure is allowed to be claimed against such income.

Gamers should know that any winnings on which TDS has been deducted will still need to be disclosed in their income tax returns. The gaming companies take the gamer’s PAN along with the bank account details, however, the gamer’s responsibility does not end with providing these details. The reporting of such income earned will need to be done at the time of filing of the gamer’s tax returns as well.

If the winnings are received in kind, which is rare in the mobile gaming world, but quite common in other online/TV show gaming, then the tax rate will be applicable on the market value of the prize received in kind. The prize distributor will need to deduct the tax before transferring the prize to the winner, or the same can be borne by the prize distributor himself.

The online gaming industry currently has about 300 million users in India. This number is expected to double over the next two years, with some gaming companies already seeing a 100% spike in new user registrations since the start of the lockdown. If even a small percentage of this number of results converts to winnings, it could be a huge source of revenue for the government.

(The author is the founder and CEO – ClearTax)

The provisions of income earned from online gaming fall under section 115BB of the Income Tax Act.Winnings received in kind will be taxed on the the market value of the prize received in kind