Any income from winnings from lotteries, crossword puzzles, card games and other game of any short, races including horse races, etc., is chargeable to income-tax under section 115BB. This section imposes an income tax at a flat rate of 30%. Further, the provisions of TDS are applicable on it. Section 194B and 194BB deals with TDS on such income. It casts a legal obligation on such person making payment on account of winning or other activities as mentioned above, to deduct TDS at the time of payment. Such TDS should be deducted at a rate of 30% if the payment exceeds ₹ 10,000. Further, such TDS should be deducted irrespective of the fact whether it is being paid to a resident or non-resident. It is taxable in the hands of both residents and non-residents and hence, TDS is deducted from the payment to both.
There is also a special section for collection of TDS from winnings in Horse Race or betting on any other race. The provisions related to it are in section 194BB. Section 194BB casts responsibility on the following persons to deduct tax at source –
A bookmaker; or
A person to whom a license has been granted by the Government under any law for the time being in force –
For horse racing in any race course; or
For arranging for wagering or betting in any race course.
Further, the obligation to deduct TDS under 194BB arises when the abovementioned persons make payment of any income by way of winnings from any horse race in excess of ₹ 5,000. The rate applicable for TDS is 30%.
TDS when Winnings are in kind
Where such winnings are in kind and no money is paid directly, the amount of TDS has to be arranged by the person who has won such things in Kind. For example, if a car of ₹ 20 lakhs is won in an XYZ lottery by Mr A, he has to arrange the TDS amount before he can take the car at home. Managers of XYZ has to get such amount i.e. 30% of 20 lakhs = ₹ 6 lakhs, from Mr X before handing the car to Mr X.
Filing of Returns
The Managers of such lottery or betting manager for such races have to submit the details of such payments in Form 26Q. They need to file this return with details of PAN of a person winning such lottery or bets along with amounts won and TDS deducted.
Some important points often confused by Assessee
People often think that they have complied with income-tax act when TDS is deducted from the payments received by them. But, it is not. Although TDS of 30% is deducted on receiving payment from incomes related to winning from games, puzzles, card, lotteries or as such, still they need to file their return. While filing their returns, if their income either on account of such income or income from any other source exceeding the basic exemption limit, they have to compute and pay tax on basis of self-assessment. And it is on this payment, that one can notice the effect of surcharge and cess taxes. Despite deduction of TDS at the rate of 30%, the surcharge if applicable and cess taxes are due till they pay it on the self-assessed basis at the time of filing of their returns. It is needless to say that any TDS deducted either under this section or any other along with advance tax paid and any self-assessed tax if any paid earlier for the relevant financial year will be adjusted with the net amount of their tax liability.
Further Section 206AA provides that any person whose receipts are subject to deduction of tax at source i.e. the deductee shall furnish his PAN to the deductor. Failing to furnish PAN will result in TDS at the rate which is higher of –
The rate prescribed in the Act;
At the rate in force i.e, the rate mentioned in the Finance Act; or
At the rate of 20%.
In this case, the tax rate of 30% is applicable as prescribed in the Act. Hence, even if no PAN is submitted, TDS will be deducted at the rate of 30%.