Section 194B

What is Section 194B of the Income Tax Act?

Section 194B mandates that tax be deducted at source (TDS) on winnings from lotteries, quiz contests, game shows, online gaming, and similar competitions. If the prize money exceeds ₹10,000, the organiser or distributor must deduct TDS at 30% before handing over the prize to the winner.

This provision applies to both cash and non-cash prizes. If the prize is awarded in kind (such as a car, jewellery, or property), the winner must pay the applicable tax before receiving the prize, or the organiser must bear the tax liability on their behalf.
 

Applicability of Section 194B

Section 194B applies to various categories of winnings, including:

• Lotteries (government and private)
• Crossword puzzles
• Television game shows (such as ‘Kaun Banega Crorepati’)
• Online gaming (fantasy sports, poker, rummy, Dream11, MPL, etc.)
• Gambling and betting
• Raffles and lucky draws
• Horse race winnings
• Reality shows with prize money

The section ensures that all forms of winnings above ₹10,000 are taxed at source, reducing the chances of tax evasion.

TDS Deduction Rate Under Section 194B

The tax deduction under Section 194B is a flat 30%. This means that irrespective of the total income or tax slab of the winner, a direct 30% deduction is made from the prize amount before distribution. With this, a health and education cess of 4% is applied, making the effective tax at 31.2%.
 

Important Points to Note:

There is no exemption limit for tax deductions. Even if the winner’s total income is below the taxable limit, TDS is still deducted.
The TDS is calculated on the full winning amount.

In the case of non-cash prizes, the tax is calculated based on the market value of the prize.
 

Tax Deduction on Non-Cash Prizes

When the prize is awarded entirely in kind, such as a car, vacation package, or jewellery, the payer must ensure that the tax is paid before handing over the prize. The winner has two options:

• Pay the TDS in cash before claiming the prize.
• The payer (organiser) bears the tax liability, increasing the total prize value.

Example:

If an individual wins a car worth ₹5,00,000, they must pay ₹1,50,000 (30% of ₹5,00,000) as TDS before receiving the car. If the organiser bears the tax burden, the total prize value increases, and TDS is calculated accordingly.
 

Income Tax Treatment of Winnings Under Section 194B

Income Tax Return (ITR) Filing

• Winnings under Section 194B are classified under Income from Other Sources in the ITR-2 form.
• The entire winning amount is taxable, without any deductions.

No Deductions or Exemptions

• The winner cannot claim any deductions under Section 80C, 80D, or 10(10D).
• Even if the total annual income is below the tax slab, TDS still applies.

No Refund of TDS

• Even if the winner has no other taxable income, they cannot claim a refund on TDS deducted from winnings.
   

Consequences of Non-Compliance with Section 194B

If the payer fails to deduct or deposit TDS under Section 194B, they face penalties and legal consequences:

Interest Penalty:

• 1% per month if TDS is not deducted.
• 1.5% per month if TDS is deducted but not deposited.

Penalty Amount:

• Equal to the unpaid tax amount.

Imprisonment:

• Between 3 months to 7 years, depending on the severity of non-compliance.
   

Illustration of TDS Deduction Under Section 194B

Example 1: Cash Prize

A contestant wins ₹50,000 in a TV game show. The tax calculation is:

Example 2: Prize in Kind (Car Worth ₹6,00,000)

Key Considerations for Taxpayers

• Keep records: Winners should keep copies of TDS certificates (Form 16A) issued by the organiser.
• Declare winnings in tax returns: Non-declaration of winnings can lead to income tax scrutiny.
• Consult a tax professional: In case of doubts regarding winnings and tax liabilities, consulting a CA is advisable.
   

Conclusion

Section 194B of the Income Tax Act ensures that winnings from lotteries, game shows, and online contests are fairly taxed and prevent tax evasion. Winners must be aware of the tax implications before claiming their prize, and organisers must comply with TDS deduction rules.

By understanding TDS on winnings, taxpayers can better manage their tax liabilities and avoid penalties. Whether you are a participant in reality shows, online gaming, or lucky draws, being aware of your tax obligations is essential.