Section 194B of Income Tax Act

Winnings from lotteries, quiz shows, card games, internet gambling, and dancing contests are subject to tax withholding (TDS) under Section 194B of Income Tax Act. Betting winnings must total more than Rs 10,000.

In certain instances, the winner may get a partial or whole award in the form of a non-monetary item. If the payer does not have enough cash on hand to cover the TDS, they must wait for the funds to be released. The payee may also provide evidence of payment of any required TDS to the payer.

What is Section 194B of Income Tax Act?

If a prize is awarded entirely in kind or partly in kind and partially in cash but not enough cash remains to cover any applicable TDS liabilities, the payer will not distribute the prize until either they have collected the amount equivalent to the TDS amount from the payee or the payee has provided sufficient evidence that he has met the requirements for the payment of any outstanding TDS amounts. They require the payee to independently pay any applicable TDS and provide evidence of payment to the payer.

Who is required to deduct tax under Section 194B?

Those responsible for handing out cash prizes from lotteries, TV programmes and online games must also collect the TDS amount at the time of payment and send it to the government.

What is the rate of TDS under Section 194B?

The following income categories are all subject to the same flat tax rate of 31.2%:

• Lottery (online and offline)
• Word searches
• Betting on horse races
• Sports involving playing cards
• Gambling (online and offline) 
• Programs broadcast on television, such as game shows, quiz shows, singing contests, and so on.
• Speculative athletics

Section 194B of Income Tax Act: TDS rate

When it comes to payouts that exceed this threshold, the current TDS (Tax Deducted at Source) rate is a flat 30%. When additional fees like the surcharge and the cess are added to the basic income tax rate, it rises to 31.2%. If you win money, you may be subject to tax withholding by the business or organisation that paid you the award.

Section 194B of Income Tax Act: Mode of payment

Winnings may be paid entirely in kind, in part, and cash, or any combination of these two methods. If the payer does not have enough cash on hand to cover the TDS, they must withhold the recipient’s share of the winnings until the payee transfers them the necessary funds. The payee may also provide evidence of payment of any required TDS to the payer.

know about: Section 194DA of income tax

How to calculate TDS under Section 194B?

Under Section 194b of the Income Tax Act, such income from game shows and lotteries is considered separately from the other income of a person for taxation purposes. Winnings from such sources fall under the head ‘Income from other sources’.

For example, person A has won prize money at a quiz show Rs 10 lakh while his taxable income from his business is Rs 8 lakh. The TDS on his income from the quiz show will be calculated separately. There is no tax levied on income up to Rs 3 lakh while tax at the rate of 5% is applicable for income between Rs 3 lakh to Rs 6 lakh. Income between Rs 6 lakh and Rs 9 lakh attracts tax at a rate of 10%.

Based on the new tax regime, the tax liability is calculated based on Rs 15,000 (5% of Rs 3 Lakh) + 10% of income above Rs 6 lakh (which is Rs 2 lakh). Hence, the income tax liability of person A = Rs 15,000 + 10% of Rs 2 lakh = Rs 35,000.

However, on the quiz show winning amount winnings of Rs 10 lakh, a rate of 31.2% will be applicable at source. So, the TDS will be Rs 3,12,000. Therefore, the actual earnings from the winnings from the quiz show will be Rs (10,00,000-3,12,000) = Rs 6,88,000.

Section 194B: Main facts

• A person may be sentenced to a minimum of 3 months in jail and a maximum of 7 years in prison and fined for failing to pay tax withholding and reporting requirements (TDS) by Section 194B.
• When you receive a reward that is both monetary and in-kind, TDS is only applied to the monetary portion of your award.
• If your prize money is paid out in instalments, TDS will be withheld at the time each instalment is disbursed.
• Only at the moment the winnings are paid out is income tax due to be withheld under Section 194B. Such TDS should be deducted at the appropriate rate from each instalment of such payment.

Know about: section 194k

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