How much tax has to be paid on lottery or game show prize money?
In a recent episode of Kaun Banega Crorepati 9, a popular Hindi game show currently running on TV, Anamika Majumdar, 41, won Rs1 crore as prize money. She answered 15 questions out of the maximum of 16 questions. Had she answered the last question too, she would have won the jackpot of Rs7 crore.
Although she won Rs1 crore, a substantial amount from it will go towards the income tax. In fact, even if a contestant wins Rs1,000 on the show, she would have to pay tax on it, regardless of her income-tax slab. Let’s read more about how winnings from game shows and lottery are taxed.
Amount of tax
The money received from winning lotteries, games shows, crossword puzzles, races—including horse races—are considered as ‘income from other sources’. However, as per section 115BB of the Income-tax Act,1961, the entire income from above sources will attract tax at the rate of 30%, along with applicable cess and surcharge. This means, the total tax on these winnings can be as high as 35.53%, depending on your income-tax slab. The rate of tax can vary because while cess of 3% of the tax is charged for all income groups, the surcharge 10% and 15% of the amount of tax is applicable if the net taxable income of an assessee exceeds Rs50 lakh and Rs1 crore respectively.
In the show, its host Amitabh Bachchan gives a cheque, or transfers the money into a winner’s account on answering a correct question. However, under section 194B of the Income-tax Act, the payer (the game show in this case) has to apply tax deduction at source (TDS) before making any payment, if the winning amount is more than Rs10,000. TDS has to be charged at the rate of 30% (without surcharge and cess) if the winner is resident of India, and at the rate of 30% along with cess and surcharge in case of non-residents.
In cases the winning prize is in kind—such as a car or television—the tax has to be collected by the prize distributor—based on the market price of the prize.
No deduction or exemption
Not only are incomes from lotteries and games shows charged at the highest tax rate, no deduction or exemption is allowed on these under the income-tax Act. The winner cannot even claim the basic exemption of Rs2.5 lakh, up to which no income tax is charged.
For instance: if the total winning amount of a person is Rs1,00,000 and that is also the total earning during the entire year, she still has to pay Rs30,900 (30.9% including cess) as tax.
So, going by the above tax rules, Anamika Majumdar’s net winning amount would be Rs66,01,000, after deducting Rs33,99,000 as tax—which includes Rs30 lakh (tax at 30%), plus Rs3 lakh (surcharge at 10% of tax) plus Rs99,000 (cess at 3% on tax and surcharge).