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In India, income earned from gambling, betting, lotteries, and similar games is treated differently from regular income and is taxed under a special provision of the Income Tax Act. This is covered under Section 115BB and further enforced through Tax Deducted at Source (TDS) provisions under Section 194B. This article explains both aspects in detail.

Flat Rate Tax on Winnings:

Section 115BB applies when a taxpayer earns income from the following sources:

Lotteries:

• Crossword puzzles
• Races, including horse races (excluding income from owning and maintaining racehorses)
• Card games and other games of any sort
• Gambling or betting of any nature whatsoever

Taxation Structure:

Winnings from these sources are taxed at a flat rate of 30%, without any deductions or exemptions. The total tax liability is the sum of:

• 30% Tax on Winnings: This rate is applied directly to the income earned from such sources.
• Regular Tax on Remaining Income: The rest of the total income (excluding such winnings) is taxed based on the individual’s applicable slab rates.

No Deductions Allowed:

No deductions under Chapter VI-A (e.g., Section 80C) or expenses related to earning this income can be claimed against these winnings.

TDS on Winnings:

To ensure upfront tax collection, Section 194B mandates Tax Deducted at Source (TDS) on winnings of the nature prescribed in section 115BB.

Payer is required to make TDS (deduct tax at source), in a case where the payment for winnings in aggregate exceed ₹10,000 in a financial year.

Rate of TDS:

TDS is deducted at 30% on the entire amount of winnings (not just the amount exceeding ₹10,000).

In Case of Non-Cash Prizes or Partly Cash Prizes:

If the winnings are wholly or partly in non-cash form (e.g., a car, bike, or gift), then:

• The payer must ensure that tax at 30% is paid by the winner before releasing the prize.
• If the prize is wholly in kind (e.g., a car with no cash component), the winner must deposit the tax in advance, or the sponsor must bear it.

Conclusion:

Sections 115BB and 194B ensure that income from lotteries, games, and gambling is taxed at a fixed rate and collected at source to prevent tax evasion. If you receive any such income, it's crucial to:

• Report it in your income tax return
• Understand that no deductions are allowed
• Reconcile TDS deducted with Form 26AS and claim it during ITR filing

Proper tax planning and awareness of these provisions can help avoid surprises during return filing or scrutiny.

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Disclaimer:

The information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. Readers are advised to consult with a qualified tax advisor or legal professional for specific advice tailored to their individual circumstances, particularly regarding reassessment proceedings and claiming refunds. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the content of this article.