Section 194B of Income Tax Act

Under Section 194B of the Income Tax Act, TDS will be deducted when the income is earned from the winning lotteries, card games, quiz shows, card games, online gaming, and dance competitions. The winnings from the games need to be more than Rs. 10,000.

If someone has won a game, a competition, or a lottery, they will have to know about Section 194B and TDS on winning from the lottery. 

What is the Section 194B?

According to sec 194b of the income tax act, a person will be responsible for paying lottery tax and more before making the payment. It is applicable when the winnings exceed ten thousand Rupees.

There could also be cases when the winnings are partly in kind or fully in kind. When the cash balance is not enough to deduct TDS, the payer is accountable for withholding the winnings until the payee pays him an equal amount of cash. 

Alternatively, the payee could pay applicable TDS and submit the proof of payment to the payer. 

Applicability of Section 194B

Lottery, television, and internet game winners are required to collect and deposit the TDS amount at the time of payment to the Government. 

Here is the list of the sources that will be subject to a 31.2 per cent flat tax:

  • Lottery 
  • Crossword puzzles
  • Fantasy sports
  • Gambling
  • TV shows
  • Card games 
  • Race betting

Things to Remember About Section 194B

  • If the prize is given partly in cash and then partly in kind, then the tax on the whole prize would be deducted from the cash prize.

  • If the prize is given only in kind, then the payer needs to ensure that the tax has been paid on these incomes before releasing such prizes.

  • Where there is a particular percentage that has been forgone either in favour of the Government or the agency conducting lotteries, then this portion will not be subject to deduction of the TDS.

  • Where an agent gets the prize money on an unsold ticket or becomes entitled to the unclaimed prize, it would then form a part of the business income and, therefore, will not be liable for a tax deduction in Section 194B.

  • If the prize money is paid in installments, then the tax would be deducted at the time of the payment of every installment.

  • The tax would be deducted on the payment of a commission and more to the lottery agent in Section 194B.

Rate of Interest Under this Section

  • TDS rate is 30%. 
  • There won't be a fee and a health and education cess added. 
  • TDS will therefore be deducted at standard rates.

Commission to the Agent or Middleman

Any bonus or commission provided to lottery agents, sellers of lottery tickets, or sales made by them out of lottery winnings, etc., is not subject to income tax withholding; instead, tax is withheld after subtracting the bonus and commission.

Penalties Under Section 194B

If a person who is responsible does not deduct the tax, then they would have to pay the penalty that is as much as the amount of tax that has to be deducted. The deductor would need to deposit the tax deducted to the Government. If not, it could lead to imprisonment for a minimum of 3 months to 7 years or a fine. 

How to Calculate the Deduction of TDS in Section 194B

For IRS purposes, winnings from lotteries and game shows are counted separately from your other income. Such winnings fall under the category of "Income from other sources."

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