Section 115BB of the Income Tax Act, 1961

Introduction to Section 115BB: 

There are certain casual incomes such as winning from lotteries, horse races, and other games of gambling or betting in nature which are taxed at a certain flat rate. The government wants to discourage the general public from doing those types of activities and that is why it has set a flat rate of tax for those casual Income. Section 115BB of the Income Tax Act deals with certain types of casual income and how they are going to be taxed.  

In this article, we will discuss the provisions of Section 115BB of the Income Tax Act, 1961. 

Objective of Section 115BB of the Income Tax Act, 1961 

The objective of this provision is: 

1. To check on tax evasion,
2. To ensure transparency in the source of income 

Applicability of Section 115BB: 

Section 115BB of the Income Tax Act applies to certain types of income. This section is applicable to the income from winnings in the case of – 

1. Lottery, or  
2. Crossword puzzle, or  
3. Race including horse race, or  

Note: However, this provision is not applicable to the income arising from the activity of owning and maintaining race horses. 

1. Card games, or  
2. Other games of gambling or betting in nature. 

Tax Rate under Section 1115BB 

The tax rate applicable for the above categories of income is flat at 30%. Further, there would be a surcharge and health and education cess (HEC) of 4%.  

Here, no benefits of slab rate can be availed. 

The income tax payable shall be the aggregate of – 

1. Income tax Rate of 30% on income from the above categories, and 
2. Normal Income Tax Rate on Total income less the income from above categories. 

Winnings from Online Games 

From the Assessment Year 2024-25, the income earned by way of winnings in online games will not be taxed under Section 115BB of the Income Tax Act, 1961. 

It will be taxed under Section 115BBJ at the rate of 30% which will include surcharge and HEC as well. 

Deductions and Exemptions: 

Section 115BB does not allow any deductions and exemptions. No expenditure or allowance is allowed as deductions. This means that the entire amount of income from the game of betting or gambling is to be taxed at a 30% flat rate without any deductions or exemptions. 

Set off and Carry Forward: 

Set off and carry forward of losses are not available for these types of casual Income i.e., winning from lotteries, crossword puzzles, horse races, betting, card games, etc. This means that if a person incurs any losses from this source of income then that loss cannot be set off against the profit of the same source of income neither the loss can be set off against any other head of Income.  

Illustrations: 

• Mr. A wins Rs 1,00,000 in gambling. Mr. B is responsible for making the payment of the winning amount to Mr. A. In this case, he must deduct tax at the rate of 31.2%, which is arrived at 30% + 4% for a surcharge. He must deduct Rs 31,200 as tax under Section 115BB while making the payment. 
• Mr. A wins a crossword at Rs. 20,000 and a car which is valued at Rs 80,000. Mr. B is responsible for making the payment of cash and for giving the car to Mr. A. Mr. B while making the payment must deduct the tax at 31.2%. In this case, it is not sufficient to deduct tax from the winning amount. So, Mr. B while making the payment and giving the car must deduct Rs. 20,000 from the winning amount and also must take Rs 11,200 from Mr. A as tax.  

Filing of Income Tax Form under Section 115BB: 

The forms for filing Income Tax for these types of casual Income are ITR 2 and ITR 3. A taxpayer can file any one of the above Income Tax Forms subject to the other incomes of the assessee.  

Conclusion 

Section 115BB of the Income Tax Act, 1961 provides for the tax rate of 30% on income from winnings of lottery, gambling or betting, etc. No deductions or exemptions are provided for these types of incomes also. Also, there is no set-off or carry forward of losses from this type of income.