LRS RBI - Lottery winnings in India or abroad

Hi G Raja,

Great questions! Let me break down the Liberalised Remittance Scheme (LRS) rules relating to lottery winnings and their transfer abroad under different scenarios:

1. Lottery Winnings Won in India (INR 1 crore) and Transfer Abroad

• LRS Purpose: Under LRS, resident individuals can remit up to USD 250,000 per financial year abroad for permitted current or capital account transactions.

• Prohibition: As per RBI guidelines, remittance of money out of India through LRS cannot be made from income sources which are illegal or prohibited in India.

• Lottery Winnings:

  • Lottery winnings are considered income and taxable in India (at flat 30% under Section 115BB).

  • There is no explicit prohibition on transferring lottery winnings abroad after tax compliance.

  • However, funds need to be routed through proper banking channels with valid documentation (e.g., tax paid proof).

• Conclusion: Ram can transfer his lottery winnings abroad under LRS after fulfilling all tax liabilities and documentation.

2. Lottery Winnings Won Abroad (US Lottery) and Received in Indian Bank

• The US lottery winnings are foreign income remitted to India.

• Once funds are in Indian bank account and taxed as per Indian income tax laws (if applicable), the amount in INR is eligible for outward remittance under LRS, subject to limit of USD 250,000 per year.

• Important: RBI treats foreign lottery winnings as foreign income, which should be disclosed in ITR.

• Conclusion: Ram can remit the funds abroad under LRS, provided he complies with tax and FEMA documentation.

3. Interest Earned on Lottery Winnings Fixed Deposit in India and Remittance Abroad

• Interest income earned on deposits in India is taxable in India.

• Outward remittance of interest income is allowed under LRS, subject to the annual limit and documentation.

• Conclusion: Ram can remit interest earned on FD abroad under LRS.

Important Notes:

• All remittances under LRS require proper documentation, including PAN, tax return filing, and declaration forms.

• Remittances for purchase of immovable property abroad are allowed under LRS, so using lottery winnings to buy property abroad is permissible.

• Always consult with a tax or FEMA expert for compliance and documentation before remittance.

Summary Table

Rules under FEMA:

• Case 1 (Indian lottery): remittance out of lottery winnings is prohibited under Schedule I, item 1, of the FEMA (Current Account Transactions) Rules, 2000. LRS cannot be used for it, not even for buying property abroad.

• Case 2 (foreign lottery, winnings received abroad): purchase of foreign lottery tickets is itself prohibited (Schedule I). A resident who acquires assets abroad must also repatriate foreign earnings within the prescribed time (Sec 8 FEMA; Foreign Exchange Management (Realisation, Repatriation...) Regulations, 2015).

• Income-tax:

– Lottery winnings are taxed at 30% plus surcharge and cess (Sec 115BB), with no deduction or basic exemption.

– TDS is 30% under Sec 194B; for winnings in kind, the payer must ensure tax is paid before release.

– For foreign winnings: report in the ITR and in Schedule FA. Foreign tax credit is available under Sec 90/91 with Form 67.

• If the funds have already been used, regularise through compounding under FEMA Sec 15 before the ED takes it up.