Is the prize money received in a game show or a lucky draw taxable?

Mr. Shah wins Rs.1 Crore in KBC TV Show; Anchor cuts the cheque or says the amount is instantly transferred to his bank account (to promote digital pay)! Mr. Rahim wins a Car through a lucky draw from a leading Appliances distributor; you see his pic with the car in the newspaper.

Happy to see this kind of event – for all three of us; winners, audience, and the taxman!  As a matter of fact, the real winner is the tax department. Winner slogs to reach there, audience pay for a subscription to watch and taxman does nothing, but take home a substantial portion of the prize money!

On prize money of Rs.1 Crore, the taxman gets Rs.34.32 lakhs. This amount has to be deducted by the host (TDS u/s 194B) before disbursing the amount to the winner. (The cheque flashed in the program is fake, just aired for excitement!)

Wonder how the TDS can be made when the prize money is in kind, say, a Car or a Washing machine? It is simple. The dealer/the host will ask the winner to deposit the applicable taxes before handing over the prize in kind or the dealer may absorb the taxes himself by grossing up the prize money.

Winnings from lottery or crossword puzzles or card games or TV shows, betting or gambling, etc. attract Tax at 30% of the prize money.  (Hey, betting and gambling are illegal or banned, right? That is true, but for a taxman, nature or source of income is immaterial. It’s taxed happily)

Mr. Shah got Rs. 1 Crore in March 2021 and the organizers have deducted TDS on it. Now, he wants to save taxes u/s 80C, by paying Insurance Premium or u/s 80D – by taking a health insurance policy. Can he do so?  No. The Deductions or allowances or TDS Refunds are not permitted from the prize money income. The Gross amount has to be offered to taxes.

Suppose, Shah has won the game on 26th March 2021 but got the prize money on 4th April 2021, in which year does he have to file the return?  The income accrues in the year in which it is received not when it is declared.

The Individual Tax slab rates are not applicable for prize money. Irrespective of other income of the taxpayer, a flat rate of 30% plus Surcharge and Cess, as applicable is levied. The winners, be it an agriculturist or a student has to file the return declaring income as Income from Other Sources [(Section 56(2)(b)] like any other normal taxpayers.

So, aim to win; the taxman will partner in your celebration.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at [email protected]

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