KBC - No freedom from tax!

Devendra (Chartered Accountant) (4775 Points)

02 November 2011  


All winnings from Lottery or Games are taxed at flat rate of 30% & TDS is mandatory before Prize is handed over! Though the popular TV Game Show KBC (Kaun Banega Crorepati) will launch its 5th Avataar on India’s 64th Independence Day 15th August, 2011, it will indeed be ironical that its prize winnings will enjoy ‘no freedom from tax.’ Participants receiving cheques signed by Big B for the full prize money as shown on your TV screen is mere hype, since no one really gets to take anything home before the taxman gets his pound of flesh (read tax) at a flat 30.9% from the same! FLAT 30.9% TAX ON ALL WINNINGS IN CASH OR KIND This is because Section 115BB of the Income-tax Act, under the Chapter ‘Determination of Tax in certain Special Cases,’ prescribes income-tax at the flat rate of 30% on all incomes by way of winnings from lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever. Infact, considering the levy of 3% Education Cess on the amount of income-tax, the effective tax rate would work out to 30.9%. Even in a case where a taxpayer has no source of income at all and his prize money from a lottery or a game show is only 1,00,000, tax of 30,900 would still be attracted on the same, since no basic tax exemption or any allowance or deduction are eligible for set-off against such winnings. Explanation to Section 2(24)(ix) clarifies that ‘lottery’ includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called. Similarly, it also explains that ‘card game and other game of any sort’ includes any game show, an entertainment programme on television or electronic mode in which people compete to win prizes or any other similar game. It needs to be borne in mind that the meaning of ‘lottery’ for the above purposes is wide enough to include not only a conventional lottery alone, but prizes in cash or kind awarded under any lucky draw or other gift, promotion or incentive scheme also. TDS RESPONSIBILITY CAST ON PAYER Section 194BB has cast the responsibility on the person paying any such winnings exceeding 10,000, to deduct income-tax at 30% at the time of payment thereof. It has been further provided that in a case where the winnings are wholly in kind, or partly in cash and partly in kind, and cash is not sufficient to meet the TDS liability, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings. Thus, don’t be surprised if you are called upon by the organizer to deposit 30% of the car value towards TDS, where you have won a car as a prize under a game or a scheme. No wonder, Clause 74 of the terms and conditions of KBC-5 required to be signed by each participant reads as under: “Any and all taxes and/or levies applicable on the prize money won by the Participant(s), under the laws of India shall be borne by the Participant(s) in relation to the prize. Payment of prize money to the Winner(s) shall be after deduction of all applicable taxes and levies and subject to providing the relevant documents as intimated by the Company and will be paid within the time stipulated by the Company.” Do not miss to discharge your TDS obligations referred above, if you are offering any prizes for your business promotion under a sales promotion, incentive or gift scheme or you are organizing any lucky draw or prizes by lots scheme for the members of your group, club, society or association. If you miss to do so, it would be at a great peril, because Section 201 of the Income-tax Act provides for recovery, not only of the TDS amount in default, but also prescribes for levy of penal interest at 1% per month. Moreover, Section 271C empowers the Department to levy a penalty of a sum equivalent to the amount of TDS not deducted. And if you are a winner of any cash or kind, either by luck or by chance, or even using your own skill or intelligence, be prepared to modify the popular saying, so that it may read as under, “Khuda deta hai chhappar phaadke, Magar usmein 30% Aaykar ka chhed karke!”