TDS ON WINNINGS FROM LOTTERY, PUZZLES, GAMES ETC UNDER SECTION 194B OF THE INCOME TAX ACT

TDS U/S 194B: TDS ON WINNINGS FROM LOTTERIES, CROSSWORDS, PUZZLES ETC. & ITS APPLICABILITY

1. What do you mean by TDS?

TDS stands for Tax Deducted at Source. TDS is a kind of tax that is deducted by the payer before making certain payments like Salary, Rent, Commission, Interest, Royalty, Professional Fees etc. to the payee.

TDS is required to be deducted at the source if the money to be paid and the money already paid exceeds a specified amount.

The Payee can claim this tax deducted by the payer while paying his income tax liability for the year, and if the TDS deducted is more than the income tax liability of the assessee then he/ she will be entitled to a refund.

The main purpose of introduction of TDS was to reduce the Tax evasion by the person receiving the income.

Note: -

Payer- A payer is a person or organization who is responsible for deducting TDS before paying the amount to Payee.

Payee- A Payee is a person or organization who receives the payment from the payee after the TDS deduction.

2.  What is TDS under Section 194B of Income Tax Act?

Section 194B of Income Tax Act, 1961 mandates that TDS to be deducted on income by way of winning from lottery or crossword puzzle or card games or any other game of any sort or from gambling or betting of any form or nature whatsoever, being the amount or aggregate of amounts exceeding ten thousand rupees during the financial year.

3. When is TDS to be deducted under Section 194B?

Normally the TDS is to be deducted at the time of payment or at the time of crediting the party in the books of accounts whichever is earlier, but in case of TDS u/s 194B the TDS must be deducted at the time of payment only.

Few examples of date of deduction are: -

4. Who is required to deducts TDS under Section 194B?

Any person who is liable to pay following income is liable to deduct TDS under Section 194B: -

• Raffles or online & offline lotteries.
• Survey.
• Questions using crosswords.
• Online & offline gambling.
• Games of cards.
• Tv programs, such as game shows, quiz shows, dance competitions, singing competitions & so forth.

5. Rate of TDS under Section 194B?

The TDS rate under this Section is 30% for residents & 31.2% (30% plus 4% surcharge) in case of non-resident.

Notes: -

1. If the winning amount is wholly in kind or it is partly in kind & partly in cash and the cash balance is not sufficient to meet the TDS, then payer shall release the prize only after ensuring that tax on such winning is paid to the government.
2. In cases where book- maker paying the winnings, credits such winnings and debits the losses to the punter, tax has to be deducted @30% on winnings before set-off of losses. Therefore, the net amount after deduction of tax and losses has to be paid to the winner.

Example: -

Q. Mr Gopal won the first prize in lottery and the prize was a Maruti car worth Rs. 5 lakhs, how will TDS be deducted under this situation?

A. Section 194B provides that the person responsible for paying to any persons, any income by way of winnings from lottery or crossword puzzle, card games or any other game of any sort and the amount of winnings exceeds Rs. 10,000, tax shall be deducted @30%.

However, if the winnings is wholly in kind, the person responsible for paying the prize shall before releasing the winnings, ensure that tax has been paid in respect of such winnings.

Therefore, in our case since the entire winning is in kind, it must be ensured that the sum equal to the TDS (i.e. Rs. 1,50,000 being 30% of 5,00,000) is paid by Mr Goal before the car is release in his favour.

6. Exemption under Section 194B?

No TDS under this section if the winning or accumulated winnings is upto Rs. 10,000 during the financial year.

7. Time limit for deposit of TDS under Section 194B?

The due date for deposit of TDS is as below: -

8. What is the due date for filing of TDS return under Section 194B?

TDS is to be deposited monthly on the dates mentioned above but the return is to be filed quarterly on or before the below mentioned dates: -

9. Type of TDS return & form to be issued?

TDS under this section has to filed quarterly through FORM 26Q and the deductor has to issue FORM 16A to the employee after filing of return.

10. Fees/ Penalties for Late/ Non- Filing of TDS u/s 194B?

Following penalties/fees will be levied if there is delay in TDS deduction or delay in deposit of TDS or non-filing of quarterly return.