Income tax on lottery winnings in India is a crucial aspect of the taxation system that affects you if you are fortunate enough to win money through lotteries. Online lotteries are gaining popularity and more and more lottery winners are created in India every day.
In India, lottery winnings are subject to taxation such as Income Tax on lottery, TDS, etc. Understanding the lottery tax implications is essential for lottery winners like you to comply with the law and manage your finances effectively.
On this page you can find everything about lottery tax in India.
Tax Calculator
Winning a lottery can be a thrilling experience, but it often comes with tax obligations. It must be fulfilled to comply with tax law in India.
A tax calculator is a valuable financial tool that helps you estimate the amount of tax you are likely to owe to the government based on your lottery winnings. A lottery tax calculator simplifies the process of estimating the tax liability associated with your winnings.
Here's how a lottery tax calculator typically works and its key features:
- The calculator will first ask you to input the amount of your lottery winnings
- The calculator will use the relevant tax laws in India
- Some lottery winnings may qualify for deductions or exemptions under certain circumstances. The calculator will prompt you to enter additional information
- Once all the necessary information is entered, the lottery tax calculator will perform the calculations to estimate your tax liability
Understanding TDS Applicability on Lottery or Game Show Income
TDS on lottery or game show winnings in India is deducted by the organization conducting the lottery or game show before they pay out the prize money to you, in case you have won.
The company or entity responsible for organizing the lottery or game show is legally obligated to withhold a certain percentage of the winnings as TDS and deposit it with the government on your behalf.
The TDS rate on lottery winnings stands at 30% of the total winnings, along with any relevant surcharge and cess. When it comes to game show winnings, the standard TDS rate is also 30%, with surcharge and cess applied.
However, if you provide a valid Permanent Account Number (PAN), the TDS rate increases to 31.2%, encompassing the surcharge and cess.
Here is an example of the calculation:
TDS on Lottery Winnings
Suppose you win a lottery with a prize amount of ₹1,00,000. Let's assume a surcharge of 10% and a cess of 4%.
TDS Deducted = ₹1,00,000 × 0.30 = ₹30,000 (TDS)
Now, let's calculate the TDS including surcharge and cess:
Surcharge = 10% of ₹30,000 = ₹3,000
Cess = 4% of ₹30,000 = ₹1,200
Total TDS = ₹30,000 + ₹3,000 + ₹1,200 = ₹34,200
So, the total TDS deducted from your ₹1,00,000 lottery winnings would be ₹34,200. After taxes, you would end up with a total of ₹65,800 in your bank account.
TDS on Game Show Winnings
There are different types of TDS rates depending on whether you provide a valid Permanent Account Number.
- TDS Rate (with PAN): 31.2% of the winning amount (including surcharge and cess)
- TDS Rate (without PAN): 30% of the winning amount (plus applicable surcharge and cess)
Suppose you win a game show with a prize amount of ₹1,00,000 and provide a valid PAN.
TDS Rate: 31.2% (including surcharge and cess)
TDS Deducted = ₹1,00,000 × 0.312 = ₹31,200 (TDS)
No additional calculations are needed since the TDS rate for game show winnings with a PAN includes surcharge and cess. In this scenario, the total TDS deducted from your ₹1,00,000 game show winnings would be ₹31,200. You would end up with ₹68,800 in your bank account after deducting the taxes.
On the other hand, if you fail to provide a PAN card, then the calculation will be done the same way as during the time of lottery winnings, which we have already shown to you in the above section.
Tax on Prize Money Received in Kind
When you win a prize in the form of an asset or an item rather than receiving money, such as winning a car, then the prize distributor shall ensure before releasing the prize that the tax has been paid.
The tax amount is calculated based on the market value of the prize given. The prize distributor can either recover the tax amount from you or choose to bear the burden of the tax himself.
For example, if you've won a Baleno car in a contest, and its market value is ₹ 7,00,000, you must pay a tax of ₹ 2,18,400, which is 31.2% of the prize's value, before receiving the car.
Deductions for Investing Prize Money
Investing prize money wisely can help you grow your wealth over time and potentially generate additional income. Two common investment options for prize money are Fixed Deposits (FDs) and Equity-Linked Saving Schemes (ELSS).
Nevertheless, if you're pondering the possibility of saving by investing your prize money through these two channels, then the answer is No.
When you receive money or other assets as a reward or prize from a game show or lottery, please note that you will not qualify for any tax exemptions or deductions.
Usually, you can claim a refund if the TDS deduction is more than your taxable income in a year. However, for lottery winnings, you cannot claim any refund.
Taxation of Winnings from Online Games or Dream11
Under the new Government Tax (TDS) legislation, which came into effect on April 1, 2023, TDS will be withheld at a rate of 30% from your taxable amount either at the time of withdrawal or at the end of the financial year.
This legislation specifically applies to earnings from online games like Dream11. It's important to note that, under this new law, TDS will be applied even if your winnings from online gaming platforms or Dream11 are below ₹10,000.
Refund of TDS Under Section 194B
Section 194B of the Income Tax Act, 1961 in India deals with the deduction of TDS on winnings from lotteries, crossword puzzles, card games, and other games of any sort.
When TDS is deducted under this section, it is the responsibility of the payer to withhold a certain percentage of the winnings and deposit it with the government on behalf of the winner.
The Income Tax Act of 1961 sets a tax exemption limit of ₹10,000 for deductions at source under Section 194B.
Section 194B is applicable to the winnings or prize from any of the following:
- Lottery (online and offline) or raffle
- Sweepstake
- Crossword puzzles
- Betting (online and offline)
- Card games
- Gambling (online and offline)
- TV shows, including game shows, quiz shows, singing competitions, dance competitions, etc.
- Fantasy sports
Please Note: Earnings made from game shows and lotteries are categorized separately from your overall income. These gains are classified under the category known as ‘Income from other sources.'
Tax Deduction for Lottery Agents Under Section 194B
If lottery winnings or similar prizes include any bonuses or commissions payable to lottery agents or ticket sellers based on their sales, income tax will not be deducted from the amount paid to them.
Tax will only be deducted after accounting for commissions.
Applying for a TDS Certificate for Tax Deduction
Downloading a TDS certificate is a straightforward process, ensuring you can effortlessly acquire it and keep tabs on your tax deductions. Here are the steps for getting the TDS certificate:
- Go to the Income Tax website
- Provide your User ID, such as your PAN card number or Aadhar number
- Tap the Continue button
- Click the Continue button again after entering your password
- After successfully logging in, select My Account and then click on View Form 26AS from the dropdown menu
- Once you've reviewed the disclaimer and clicked Confirm, you will be directed to the TDS-CPC Portal
- Select View Tax Credit
- Choose an Assessment Year and Tap on View/ Download
