Today one sees many game shows and other contests on television. Quiz contests, musical contests, games, cookery contests, comedy contests, reality shows—most general entertainment television channels run such multiple contests. Not only television channels, but various websites run contests and games, offering various prizes to the winners. Some of these contests involve a test of skills, but many contests select winners based purely or largely on chance. Recently, a contestant won Rs 5 crore on the television show Kaun Banega Crorepati. One saw the host handing over a cheque to the winner on the show. But does the contestant really end up richer by the full amount of the winning?
Just as in every other type of earning, in this case too the taxman gets his share of the pie. The person giving the prize is required to deduct tax at source on the winnings at a flat rate of 30%. The contestant would, therefore, get only the balance 70% of the prize. Unlike in the case of salaries, where no tax is deducted at source from those whose income is below the taxable limit, in the case of contest winnings, tax has to be deducted at source if the winnings exceed Rs 10,000. It is only if the winnings are less than Rs 10,000 that no tax would be deducted at source.
What happens if a person wins two or more prizes in a year, each less than Rs 10,000? The tax deduction applies vis-a-vis each prize and, therefore, if a person has been lucky enough to win more than one prize in a year, the limit of Rs 10,000 applies to each prize.
This tax deduction applies to lotteries, crossword puzzles, card games or any other games. The Supreme Court has interpreted the term “any other games” in a broader sense, and it would, therefore, apply to most contests or games, irrespective of whether they involve application of skill or knowledge or not.
What happens if the prize is in the form of an item or asset or a service, for instance, a car or a free vacation? Do you escape the hassle of having tax deducted at source since you cannot get 70% of a car or a vacation? The tax laws unfortunately play spoilsport here as well. You are required to pay 30% of the value of the car or the vacation to the person giving the prizes as taxes and he would insist on receiving the tax before giving you the prize. Alternatively, he may insist on you directly paying the tax before claiming the prize. How is the value to be determined in such cases? The fair market value of the asset would be the relevant criterion for determining tax.
Can you file a declaration for non-deduction of tax at source (as you can do for bank interest by filing form 15G or 15H) and, therefore, avoid tax deduction? Unfortunately, there is no such provision to escape deduction of tax at source by giving any declaration.
If your other income is below the taxable limit, can you file your income tax return and claim a refund of the tax deducted at source on such winnings? Unfortunately, such winnings are not only subject to deduction of tax at source, but are also taxable at a flat rate of 30%. So even if you have no other income, you would still end up paying 30% income-tax on your winnings. Of course, you do not have to pay any more tax in most cases, since 30% tax has already been deducted at source, which is adjusted against your actual tax liability. For taxation of your winnings, the entire winning is taxable, and not just the excess over Rs 10,000 and, therefore, when you file your return you have to pay the tax of 30%, which is not deducted at source.
What is the position if the winner is a minor? Here, too, tax will be deducted at source. Normally, the income from such winnings will be taxed as the income of the parent on account of the clubbing provisions applicable to minor’s incomes and the parent would get credit for taxes deducted at source, provided a declaration is given to the person giving the prizes that such income would be taxed as the income of the parent and giving the Permanent Account Number of the parent. However, if the winnings are attributable to the talent, skill or specialized knowledge and experience of the child, the winnings would be taxed as the income of the child itself and would not be clubbed with the income of the parent. This, however, does not make much of a difference since the child too ends up paying 30%.
All in all, remember that even if you end up with the jackpot or a lottery, you cannot escape the tax net, but have to share your luck with the taxman.
Gautam Nayak is a chartered accountant.
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