Did you get a bonus this year or are you due for one soon? A bonus amount at the end of the financial year from your company can make you excited. But remember that your job doesn’t end when you get the amount.
Reporting your salary income in your income tax return (ITR) is usually a breeze if you have your Form 16. You can easily locate the details that must be reported in your ITR. Salaried taxpayers usually face hurdles while reporting income earned other than salary, such as bonuses from their employer or when they win a lottery or a prize.
The usual questions that confound are whether this money is taxable, if yes then under which head it must be reported and how much tax must be paid on it. Let’s understand this in more detail.
Bonus of any type such as performance linked, sales target linked, ratings linked and incentive schemes are fully taxable.
They may be linked to business goals or ratings or sales numbers, and be called by fancy names, yet all of these are fully taxable. The employer is bound to include these bonuses in your Form 16 and deduct tax on them. Since it gets included in Form 16, you can use that as a basis to file your tax return. The employer will also deduct TDS on it according to slabs applicable to you.
If you have received a gift from your employer, it is exempt up to ₹5,000. Any gift beyond this value will be included in your taxable income and the employer shall deduct TDS on it. All payments received from an employer are reported under the head ‘income from salary’.
It is not uncommon to hear of taxpayers winning a prize—it could be a cash prize or in kind or may be a lottery. All such receipts are taxed under ‘income from other sources’ in your income tax return. Such incomes are taxed at a flat rate of 30%, which after adding 4% cess will amount to 31.2%. Incomes from lottery, game show or any entertainment program on television or an electronic mode, crossword puzzle, gambling or betting which could be online, races including horse races are all taxed similarly.
No deduction under section 80C or 80D or any other deduction or allowance is allowed from such an income. The benefit of basic exemption limit and income tax slabs are also not applicable to this income. The entire amount received will be taxable at a flat rate of 31.2%.
This means that if a person has only gambling income, he shall pay a tax at 31.2% without availing any minimum exemption of ₹2.5 lakh, no slab benefits and will also not be able to claim deductions allowed under section 80.
Such incomes are subject to TDS, so the payer will deduct TDS before making a payment. Where a prize has been received in kind, the market value of such a prize is estimated and tax is deducted and deposited by the payer.
Do remember that all incomes are taxable; the income tax Act encompasses all sorts of incomes an individual earns. It is important to understand which of the five heads of income they fall under and how tax rates apply to them. This will help you file an accurate income tax return and will reduce chances of an erroneous submission from your end.
Archit Gupta is founder and CEO, Cleartax