WHAT IS SECTION 194G OF INCOME TAX ACT?

TDS U/S 194G: TDS ON COMMISSION ON SALE OF LOTTERY TICKETS

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 194G of Income Tax Act?

Section 194G of Income Tax Act, 1961 mandates that TDS to be deducted by the payer while making commission payments from sale of lottery tickets to any person.

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

TDS is required to be deducted: -

• At the time of payment.

            Or

• At the time of crediting the account of payee, whichever is earlier.

Few examples of date of deduction are: -

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

Any person while making above mentioned payments to the any person during the financial year is required to deduct TDS u/s 194G (provided the income exceeds Rs.15,000).

Example: -

Q. Mr. Chaman is a lottery ticket seller selling tickets all over India, during the year he sells lottery tickets worth Rs. 1cr for which he receives Rs. 1.5 lakhs commission. Mr. Arun a lottery buyer purchases the ticket and won Rs. 10 lakhs. Explain the TDS applicability under 194G & 194B? 

A. Section 194B of Income tax Act talks about TDS on winnings from lotteries whereas 194G talks about TDS on commission on sale of lottery tickets.

In case of Mr. Chaman.

Mr. Chaman is a seller of lottery tickets and earns commission from selling such tickets so the person paying commission to Mr Chaman is liable to deduct TDS u/s 194G @ 2% i.e. 2%*1.5 lakhs = Rs. 3,000

In case of Mr. Arun

Mr. Arun won a lottery worth Rs. 10 lakhs person making such payments should deduct TDS @30% i.e. 3 lakhs (10lakhs* 30%) and pay the remaining balance to Mr. Arun.

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5. Rate of TDS under Section 194G?

The TDS rate under this Section is: -

NOTE: -

It is to be noted that effective 1^st October 2024 the TDS rates for payment of commission on sale of lottery tickets to any person will be reduced to 2% from 5%.

6. Exemption under Section 194G?

No TDS if: -

• The commission paid does not exceeds Rs. 15,000.
• Self-declaration provided under form 15G/ 15H.

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

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

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

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 194G?

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.

FREQUENTLY ASKED QUESTIONS?

Q. What is the threshold limit for TDS under 194G?

A. The threshold limit for TDS under 194G is Rs. 15,000.

Q. Whether TDS is required to be deducted under 194G if commission on sale of lottery ticket is paid to non-resident?

A. YES, this section also covers payment of commission on sale of lottery ticket made to non- resident persons also. So, TDS u/s 194G is deductible when making payment of commission on sale of lottery ticket to non-resident persons.

Q. At what amount TDS is to be deducted gross or net?

A. TDS should be deducted at the net amount after deducting all taxes like GST.

Q. What is the benefit of 2% TDS to lottery agents?

A. The agents will receive higher payout and will be able to use money throughout the year rather than waiting for a refund.

Q. Is there any way to reduce or avoid TDS under Section 194G?

A. Yes, the payee can submit form 15G/ 15H to the payer or apply for a lower deduction certificate under Section 197 to reduce or avoid TDS.

Q. What is the difference between 194G & 194B?

A. The major difference is nature of payment and the person to whom payment is made. Income from sale of lottery tickets are covered under 194G, while winnings from lottery tickets are covered by 194B.If a lottery ticket agent wins the lottery himself then the TDS will be deducted under 194B.