Section 194B of Income Tax Act: A Complete Guide to TDS on Lottery, Games, Betting, and Game Shows

Section 194B of Income Tax Act

The Income Tax Act of 1961 in India includes sections that detail the rules for tax deductions at source (TDS) on various types of income. Section 194B focuses on TDS on winnings from lotteries, games, betting, and game shows. This guide will discuss Section 194B, including its applicability, how TDS is calculated, who is responsible for deducting tax, rates, limits, penalties for non-compliance, and other key points.

Applicability of Section 194B of the Income Tax Act 

Section 194B of the Income Tax Act applies to the winnings or prizes from: 

• Lottery (online and offline) or raffle
• Sweepstake
• Crossword puzzles
• Betting (online and offline)
• Card games
• Gambling (online and offline)
• TV shows, including game shows, quiz shows, singing competitions, dance competitions, etc.
• Fantasy sports

If your earnings from any of these activities exceed ₹10,000, they will attract a TDS of 30% as per Section 194B.

How to Calculate TDS Deduction Under Section 194B?

To calculate the TDS deduction under Section 194B, it's important to understand that income from game shows and lotteries is considered separately from the rest of one's income for taxation purposes. Winnings from these sources fall under the category of 'Income from other sources'.

Let's take an example to understand the calculation. Suppose Sanjay has won ₹10,00,000 from a TV game show. After factoring in all tax exemptions, his taxable income from his business is ₹8,00,000. However, the TDS on his winnings from the game show won't be clubbed with his taxable income.

The income tax slabs determine the tax liability based on the income range. Currently, there is no tax on income up to ₹3 lakh. From ₹3 lakh to ₹6 lakh, a rate of 5% is applicable, and on income between ₹6 lakh and ₹9 lakh, a rate of 10% is applicable.

Considering Sanjay's income tax slab, his income tax liability will be calculated as follows: ₹15,000 (5% of ₹3 lakh) + 10% of his income above ₹6 lakh, i.e., ₹2 lakh. So, his income tax liability will be ₹15,000 + ₹20,000, which amounts to ₹35,000.

However, on his game show winnings of ₹10,00,000, a TDS rate of 31.2% (including surcharge and cess) will be levied at source. Therefore, the TDS amount on his winnings will be ₹3,12,000. Consequently, Sanjay's actual earnings from the game show will be ₹6,88,000 (₹10,00,000 - ₹3,12,000).

Who Deducts Tax Under Section 194B?

According to Section 194B, the person responsible for paying the prize money, usually the organizer of the lottery, crossword puzzle, game show, dance competition, etc., is liable to deduct TDS. This is applicable only if the value of the prize or earnings exceeds ₹10,000.

When to Deduct TDS Under Section 194B of the Income Tax Act? 

The TDS on winnings from game shows, lotteries, TV shows, crossword puzzles, etc., is deducted when the prize is paid. If the prize is paid in installments, TDS is applied proportionately on each installment.

Rate of TDS Under Section 194B 

The TDS rate under Section 194B is 30% on the winning amount. With surcharge and cess, the effective TDS is 31.2%. Note that a 4% cess applies to non-resident deductees in addition to the 30% base TDS rate.

TDS Deduction Limit Under Section 194B 

Under Section 194B of the Income Tax Act, 1961, the tax exemption limit on TDS is ₹10,000. TDS will not be deducted if winnings or prizes do not exceed this limit.

Penalty for Non-Compliance Under Section 194B 

Section 194B of the Income Tax Act requires the payor to deduct tax before paying the winner. Non-compliance can result in penalties, including a minimum of 3 months to a maximum of 7 years in prison, plus a potential fine.

Things to Note About TDS Under Section 194B 

Important points about TDS under Section 194B: 

• TDS is applicable at 31.2% regardless of the winner's tax bracket.
• No income tax deductions can be claimed on the winning amount.
• TDS is deducted from the cash component only when a prize has both a cash and a non-cash component.
• If the prize money is paid in installments, TDS deduction will be proportionate on each installment.
• Participants must provide their PAN and bank account details to the organizer.
• Refunds can't be claimed against TDS payments made under Section 194B.
• If the prize is a gift, the organizer holds the winnings until the winner has paid the equivalent TDS amount or has settled the TDS and submitted proof.

Conclusion

As per Section 194B of the Income Tax Act, 1961, winnings over ₹10,000 from games, TV shows, bets, etc., shall have a TDS rate of 30%. These winnings can't be combined with the winner's regular income. 

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