TDS ON WINNINGS FROM HORSE RACES UNDER SECTION 194BB OF THE INCOME TAX ACT

TDS U/S 194BB: TDS ON WINNINGS FROM HORSE RACES & 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 194BB of Income Tax Act?

Section 194BB of Income Tax Act, 1961 mandates that TDS to be deducted on income by way of winning from horse races, being the amount or aggregate of amounts exceeding ten thousand rupees during the financial year.

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

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 194BB 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 194BB?

Following mentioned persons are required to deduct TDS under Section 194BB: -

• A book maker or Turf Accountant.
• A person who has a government- issued license for horse racing.
• A person who having a government- issued license for wagering or betting any horse racing.

5. Rate of TDS under Section 194BB?

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. Chandan bet on 2 horse races in the first one he won Rs. 50,000 and the second he lost Rs. 20,000, how much TDS is to be deducted?

A. Section 194BB provides that the person responsible for paying to any persons, any income by way of winnings from horse races and the amount of winnings exceeds Rs. 10,000, tax shall be deducted @30%.

However, if the person has winnings from one horse race and loss from another race horse then the TDS has to be deducted from winnings and then set off from losses and the balance has to be paid of afterwards.

Therefore, in our case since Mr. Chandan has won Rs. 50,000 from first horse race and loss of Rs. 20,000 from second horse race, the TDS to deducted in this case is Rs. 5,000 (10% of Rs. 50,000) and then the balance amount of Rs. 25,000(Rs. 50,000(winnings)- Rs. 5,000(TDS u/s 194BB)- Rs. 20,000(loss)) to be paid to Mr. Chandan.

6. Exemption under Section 194BB?

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 194BB?

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

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

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 194BB?

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.