income tax on prize money in india

Income tax rules on winnings from online gaming

  • The provisions of income earned from online gaming fall under section 115BB of the Income Tax Act
  • Winnings received in kind will be taxed on the the market value of the prize received in kind

Many seasoned gamers across the country were left disappointed when the government banned PUB-G, a multiplayer battle royal game. This isn’t the only game which went viral amongst millennials and others in India. Over the last 10 years, the online gaming industry has seen a massive evolution thanks to smartphones and tablets. Investments from major global players led to the rapid growth of the gaming industry, with nearly half the total global gaming revenues being from the Asia-pacific region.

Online gaming usually works on a subscription model. Most games are free to download, and users get charged only if they choose to access premium content and make in-app purchases. While certain games are played purely for the thrill of it, there are other games which offer players a chance to win real money. Some of the games in which players can earn real money include games such as poker, rummy, sporting games such as cricket and football, quizzes, and battleground games. The fact that any person can earn money from online gaming has been an incentive for the younger generation to become ardent gamers.

So how are winnings from online gaming taxed in India? The provisions of income earned from online gaming fall under section 115BB of the Income Tax Act. This comes under the head ‘Income from Other Sources’ while filing income tax returns. It includes winnings from betting, gambling, card games or any other games. Hence, winnings from online gaming also fall under this category.

Winnings from online gaming are taxed at a flat rate of 30%, excluding cess. The net rate after cess amounts to 31.2%, without the benefit of the basic exemption limit. It is to be noted that the person paying out the prize money needs to deduct tax at source before distributing the winnings. This is a TDS provision laid down under section 194B and is applicable only if the winnings exceed ₹ 10,000. No deduction or expenditure is allowed to be claimed against such income.

Gamers should know that any winnings on which TDS has been deducted will still need to be disclosed in their income tax returns. The gaming companies take the gamer’s PAN along with the bank account details, however, the gamer’s responsibility does not end with providing these details. The reporting of such income earned will need to be done at the time of filing of the gamer’s tax returns as well.

If the winnings are received in kind, which is rare in the mobile gaming world, but quite common in other online/TV show gaming, then the tax rate will be applicable on the market value of the prize received in kind. The prize distributor will need to deduct the tax before transferring the prize to the winner, or the same can be borne by the prize distributor himself.

The online gaming industry currently has about 300 million users in India. This number is expected to double over the next two years, with some gaming companies already seeing a 100% spike in new user registrations since the start of the lockdown. If even a small percentage of this number of results converts to winnings, it could be a huge source of revenue for the government.

(The author is the founder and CEO – ClearTax)

The provisions of income earned from online gaming fall under section 115BB of the Income Tax Act.Winnings received in kind will be taxed on the the market value of the prize received in kind

Income Tax on winnings from Lottery, Game Shows, Puzzle

Updated on Nov 04, 2020 – 03:57:58 PM

If you receive money from winning the lottery, Online/TV game shows etc., it will be taxable under the head Income from other Sources. The income will be taxable at the flat rate of 30% which after adding cess will amount to 31.2%.Incomes from following sources come under this category:

  • Lottery
  • Game Show or any entertainment programon television or electronic mode
  • Crossword Puzzle
  • Gambling or betting
  • Races including Horse races.

TDS Applicability

If the Prize money exceeds Rs 10,000, then the winner will receive the prize money after the deduction of TDS @31.2% u/s 194B.It does not matter whether the income of the winner is taxable or not. The prize distributor is liable to deduct tax at the time of payment. In the case of winnings from horse races, TDS will be applicable if the amount exceeds Rs 10,000.

No Deduction/Expenditure is allowed from such Income

No deduction under section 80C or 80D or any other deduction/allowance is allowed from such income. The Benefit of basic exemption limit and income tax slab rate is also not applicable to this income. The entire amount received will be taxable at the flat rate of 31.20%.

For instance, Rahul has won the prize money of Rs 3 lakhs from a game show and he has an interest income of Rs 5 lakhs p.a.Then the tax liability would be calculated as per following:

Tax on Rs 3 lakhs @ 31.2%

Tax on Rs 5 lakhs as per income tax slab rates after claiming the relevant deductions.

Prize Money received in Kind

If the prizes are given in Kind say a car, then prize distributor shall ensure before releasing the prize that tax has been paid. Tax is paid as per the market value of the prize given. The prize distributor can either recover from the winner or he himself can bear the burden of tax.

For instance, Suman has won an Alto car in a contest whose market value is Rs 4 lakhs, then tax @ 31.2% which is Rs 1,24,800 must be paid before giving the car to the winner.

In cases where prize is given both in cash and kind, then the total tax should be calculated on the cash portion of the prize and on market value of the prize given in kind. And the tax amount should be deducted while giving the cash portion of the prize to the winner. But if the cash prize is not sufficient to cover the total tax liability, then either the winner or prize distributor should pay the deficit.

Find out which taxes on Lottery, crosswords and game shows are applicable on the prize money received. Check for TDS applicability. ]]>