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Section 194B of Income Tax Act

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August 23, 2022

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10 mins read

Section 194B of Income Tax Act – TDS on Winning from Lottery or Crossword Puzzles

Serial No. Contents
1. Introduction of Section 194B of Income Tax Act
2. Who is liable to deduct TDS under Section 194B ?
3. When to deduct TDS u/s 194B ?
4. Threshold limit for deducting TDS u/s 194B
5 Rate of deduction of TDS on Winning from Lottery, Crossword Puzzles
6. Deduction of TDS from Winnings of different nature

Introduction of Section 194B of Income Tax Act

Section 194B of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) states that every person, who pays any sum in the form of winnings from any lottery or crossword puzzle or card games or other games of any sort, shall deduct tax at the rate of 30% from such payments. This provision is applicable on payments made by Resident as well as Non-Resident. Let’s take a closer look at the various aspects of deduction of TDS on Winning from Lottery or Crossword Puzzles.

Who is liable to deduct TDS under Section 194B?

Every person, who makes payment of any income in the nature of winning from any lottery or crossword puzzle or card games or other games of any sort, has to deduct tax at source from such payments at the rate of 30%. No surcharge or health or education cess has to be added to the rate of 30%.

However, the deductor shall deduct TDS on winning from lottery or crossword puzzles only when amount is paid to the winner. Unclaimed or undisbursed prize money is not a winning from lottery.

When to deduct TDS under section 194B of Income Tax Act?

Income tax is to be deducted under section 194B only at the time of payment of the winnings. If such payment is made in instalments, TDS shall be deducted on each such instalment with the appropriate amount.

Threshold Limit for deducting TDS u/s 194B

The threshold limit for deduction of TDS underSection 194B  is Rs. 10,000. Where the amount received by recipient,  is below Rs. 10,000 it shall not be liable to deduction of TDS under the provisions of the Act.

Rate of deduction of TDS on Winning from Lottery, Crossword Puzzles

The rate of deduction is 30%. Surcharge and Health and Education Cess are not applicable on such payment if such sum is paid to a Resident. However, in case such payment is being made to a Non-Resident or a Foreign Company, the rate of TDs shall be increased by both Surcharge and Health and Education Cess.

The provisions of Section 206AB are not applicable if tax is required to be deducted under this provision. Section 206AB provides for deduction of tax at higher rate if the deductee has not furnished the return of income for a specified period.

Deduction of TDS from Winnings of different nature

The law has made provisions for deduction of income tax on three kinds of winnings:

  • Winnings in Kind;
  • Winnings from Chit Fund Scheme; and
  • Unclaimed or Unsold Lottery Tickets.

Let’s understand them in brief.

In case winnings are in Kind (partly or wholly)

In this case, the payer shall release the winnings only after payment of applicable taxes to the credit of Central Government.

If winnings are partly in cash and partly in kind and the cash part isn’t sufficient to pay the applicable taxes, the payer can release the winning only after payment of applicable taxes to the credit of Central Government.

In case of winnings from Chit Fund Scheme

In Chit Fund Schemes, the chits are taken at regular intervals and any person whose name comes first, is entitled to get full amount without further contributions. The prize money comes from the interest earned from the subscribers’ contributions. As every subscriber has a chance to win the prizes, the amount received without further contributions is winning from lottery, and hence tax is deductible from such payments under Section 194B.

In case of unclaimed or unsold lottery tickets

If winnings in respect of unsold lotteries or unclaimed prizes on lottery tickets are credited to the account of the agent under the terms of agreement, no income tax will be deducted under this provision.

TDS Sections

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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