Do you know about the Tax on Prize Money in India

Do you know about the Tax on Prize Money in India?

As per the provisions of the Income Tax Act, the tax on prize money is levied on its winner. Further, the prizes earned by the person are shown under the head ‘Income from other Sources’.

Cases where tax on prize money can be levied?

This is taxable in the hand of the prize money holder. Having stated that, the amount of the prize won is taxable under Section 56(2) of the Income Tax Act. Some of the cases where the tax on money can be levied are on various incomes are as follows:
– Lotteries and lucky draws,
– Races
– Card games or betting
– Crossword puzzles
– TV or electronic competitive game shows like KBC
– Sports events like IPL

Also Read: Taxability of Capital Assets in India

When is the tax on Reward money to be deducted?

The tax on prize money is to be deducted at the time of payment of such income. Furthermore, if prize money is paid in instalments, the deduction of tax is to be made at the time of actual payment of each such instalment.

Rate of Tax

The tax on prize money is levied at flat 30% of the money. Furthermore, cess is also to be added to the tax rate, which brings the total tax rate to 31.2%.

This means that even if the individual’s income falls in the 10% slab rate, winnings from awards and prizes would still be taxed @31.2%. If the prize or winning is received in kind, the market value of the item received is taken into consideration. The tax is, then, levied on the market value of the item.

Also Read: Restriction On Cash Transactions Under The Income Tax Act

TDS on Reward money

Illustration
Sharukh won a game show in which he received prize money of Rs. 2,00,000 in cash and a car worth Rs. 10,00,000. He had income from salary of Rs. 10,00,000 and income from fixed deposit interest of Rs. 50,000. Further, he also invested Rs. 1,50,000 in Section 80C and Rs. 20,000 towards his spouse’s health insurance policy.

His tax liability would be calculated as follows –

Tax on money

Particulars

Amount

Cash prize received

Rs. 2,00,000

Market value of car won

Rs.10,00,000

Total taxable winnings

Rs.12,00,000

Tax @31.2%

Rs. 3,74,400

Tax on income

Particulars

Amount

Salary income

Rs. 10,00,000

Income from other sources (FD interest)

Rs.50,000

Income from other sources (winnings)

Rs.12,00,000

Gross total income

Rs. 22,50,000

Less: Standard deduction on salary

Rs. 50,000

Less: Section 80C deductions

Rs. 1,50,000

Less: Section 80D deductions

Rs. 20,000

Net total income

Rs. 8,30,000

Tax payable 

Rs. 12,500 + 20% of Rs. 3,30,000
= Rs. 12,500 + Rs. 66,000
= Rs. 78,500

Total tax payable = Rs. 3,74,400 + Rs. 78,500 = Rs. 4,52,900

Can you claim exemptions and deductions on Reward money?

No exemptions or deductions are allowed to be deducted from the prize money. So, the taxpayer cannot claim deductions under Chapter VI A of the Act (Section 80C to Section 80U) on the prize money.

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