D. Gukesh's recent victory at the World Chess Championship has earned him a prize of approximately ₹11.45 crore. Under Indian tax laws, such prize money is typically classified as "Income from Other Sources" and is subject to taxation. Given the amount, his tax liability could be substantial, potentially around ₹4.8 crore.
D. Gukesh’s ₹11.45 crore chess prize falls under the scrutiny of Indian tax laws, particularly concerning Section 10(17A) of the Income Tax Act. Here's a deeper breakdown of the context:
Taxability of Prize Money in India
General Rule
Prize money earned from competitions, whether national or international, is classified as "Income from Other Sources" under Section 56 of the Income Tax Act.
Applicable Tax Rates
For a high-income bracket like Gukesh’s, the applicable tax rate can go up to 30%, plus surcharge and cess, bringing the effective tax rate close to 42.7% for income above ₹5 crore. This means his tax liability on the prize could exceed ₹4.8 crore.
Section 10(17A) Exemption Details
Section 10(17A) provides exemptions for awards under two categories:
- Awards instituted by the Central or State Government: These could include recognition for achievements in the fields of art, science, literature, or public service.
- Awards approved by the government: These are specifically designated awards, such as Bharat Ratna, Padma Awards, or those instituted to recognize excellence in specific areas.
Does Gukesh’s Prize Qualify?
- The chess prize awarded to Gukesh does not appear to fall under the government-instituted or government-approved awards listed under Section 10(17A). It was granted for his international sporting achievement, which typically does not meet these criteria.
- Unless the Indian government intervenes and issues a special notification, this prize money will remain taxable.
Precedents for Tax Exemptions
Cricketers and Athletes: There have been instances where prize money for significant international victories has been exempted through special government notifications. For example:
- The 1983 Cricket World Cup team was granted a tax exemption.
- Olympic medalists have also received similar exemptions in certain cases.
Ad-hoc Notifications: These are rare and depend on public demand or government policy decisions.
Current Developments
An MP recently appealed for tax exemption on Gukesh’s prize, citing the immense value his achievement brings to the country. While such appeals raise hope, any relief would require:
- A formal notification by the Ministry of Finance or the Central Board of Direct Taxes (CBDT).
- Approval of the exemption by relevant authorities under Section 10(17A) or through an amendment.
What This Means for Gukesh?
- Unless a specific exemption is granted, Gukesh’s prize will be fully taxable.
- He might explore avenues such as representing the case to the government or seeking clarification from tax authorities.
- Additionally, he could claim deductions (under allowable sections like Section 80G for donations) to offset some of the tax burden.
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