Despite the earlier post  giving various provisions on taxes on gambling winnings, we have been receiving hundreds of queries seeking clarifications on the amount of tax to be paid on gambling winnings and different circumstances under which an exception can be sought from paying tax at source on gambling winnings. We have thus collated a few practical scenarios in a FAQ format clarifying different tax related aspects concerning gambling, lottery and betting winnings. The position of law has been clarified by Hersh Sayta of Ernst & Young and other eminent Chartered Accountants, lawyers and poker players having practical experience in the subject.

1.      What is the rate of Income Tax payable on winnings from any card games, lotteries or other gaming activities?

As per Section 115BB of the Income Tax Act the current rate of Income Tax (as on financial year 2013-14) on poker winnings or winnings from any such card games etc. is 30%. However there is education and higher education cess payable on the taxable amount and hence the total effective amount of tax payable is 30.90%.

Section 2(24)(ix) of the IT Act defines card games and lotteries as follows:

“Any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.

 [Explanation.—For the purposes of this sub-clause,—

 (i)  "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;

(ii)  "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.”

Section 115BB reads as follows:

Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever.

“Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of—

 (i)  the amount of income-tax calculated on income by way of winnings from such 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, at the rate of 21[thirty] per cent; and

(ii)  the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).”

2.      Are organisers compelled to deduct Tax at Source (TDS) on poker winnings?

As per Section 194B of the Income Tax Act, on any winnings above Rs. 10,000/- (as per laws prevailing in financial year 2012-13) it is the responsibility of persons organising or managing the event to deduct 30.90% tax before releasing the winnings.

Section 194B reads as follows:

Winnings from lottery or crossword puzzle.

The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in an amount exceeding ten thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force :

Provided that in a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings.

3.      Are organisers required to give a TDS certificate when tax is deducted on winnings?

 Yes, as per Section 203 of the IT Act and Rules framed thereunder TDS certificate has to be supplied by the deductor to the deductee “within one month from the end of the month during which the credit has been given or the sums have been paid.” [See this link for more information].

4.      If prizes are awarded instead of cash, does TDS still have to be deducted?

 Yes, TDS has to be deducted to the extent of 30.90% of the value of the gift/prize or the organiser has to ensure that the winner pays the tax amount upfront.

5.      What is the liability for not deducting TDS?

Organisers or those responsible for the event can potentially face various liabilities for not deducting TDS and they would have to pay the amount payable, interest and other penalties from their own pockets if the amount is not deducted. Further, prosecution can be initiated for non-deduction of TDS and there is a maximum punishment of seven years imprisonment and fine. [See: Sections 201(1A), 221, 276B of the Income Tax Act].

6.      Are set-offs permitted before deducting of TDS?

No, set-offs or any deduction/adjustment of costs etc. would not be permitted before deduction of TDS.

7.       Is there any liability to deduct additional surcharge over and above the 30.90% TDS in case of gambling winnings?

As per the Finance Bill 2013, an additional surcharge is proposed to be levied on income from gambling under Section 115BB as TDS deductions under Section 194B on amounts exceeding specified limits. The manner and rates at which this surcharge is to be levied has not yet been notified.

Update: As per the Finance Bill, 2013 the following surcharge will be levied on the TDS deducted as per Section 194B:

The amount of tax so deducted shall be increased by a surcharge in the case of—

(i) every non-resident (other than a company) at the rate of ten per cent. where the income or the aggregate of income paid or likely to be paid and subject to deduction exceeds one crore rupees ;

(ii) every company other than a domestic company at the rate of two per cent. where the income or the aggregate of income paid or likely to be paid and subject to deduction exceeds one crore rupees but does not exceed ten crore rupees ;

(iii) every company other than a domestic company at the rate of five per cent. where the income or the aggregate of income paid or likely to be paid and subject to deduction exceeds ten crore rupees.

For Income Tax on gambling winnings in terms of Section 115BB the following surcharge shall be levied:

Total income Rate of surcharge for domestic companies Rate of surcharge for foreign companies
Up to Rs. 1 crore NIL NIL
Over Rs. 1 crore 5% on tax to be paid 2% on tax to be paid

 The provisions relating to surcharge shall be applicable w.e.f. 1st April 2013.

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20 Responses to FAQ on taxes and gambling winnings

  1. umesh.sidigonde says:

    If in marriage function playing card game by individual to who Tax audit u/s44AB and 44AA is applicable
    Q)That individual is required to deduct TDS or nor?
    Q)IF yes what are provisions will attracts as per Income Tax
    Q)What is the %?
    Q)It is one time activity!

    • Jay Sayta says:

      The person who is organising the marriage function/card game has the onus of deducting TDS is amount of prize/cash is greater than Rs.10,000/- then he has to deduct 30.9% TDS before giving the winnings, if the amount is less than that then the winner has to himself pay the requisite tax while filing the returns.

  2. ravi says:

    What if the money is received from case 1 . In foreign currency case 2. Indian currency do we have to pay 30.9% tax in both the cases

  3. BHABANI SHANKAR DHAL says:

    I have winning a lottery more than 1 crore ,then is it possible to deduct the amount of income tax of 30.9% acording to act secction 115bb from the winning amount directly although it was in the form of foreign currency. please reply me to my email.
    my email is dhalbshankar@gmail.com

    • Jay Sayta says:

      In case of foreign winnings, onus might be on you to pay the taxes and may depend on DTAA with the other country and FEMA restrictions.

  4. Ram says:

    Hi Jay,

    I have a query, I won 10 lakhs in Goa casino but they not provided any proof of winning but i need to deposit in Bank and need to file the tax but what should i mention as prrof income if they not provided any?

    Please guide me..

    • Jay Sayta says:

      If they have deducted TDS, then they are obligated to give a TDS certificate, else you can only show it as gambling winnings under Section 115BB of the Income Tax Act during final returns.

  5. MADHU says:

    I WON A PRIZE OF 40000/- IN SIKKIM LOTTEREY. I HAVE NOT ANY OTHER INCOME. TDS DEDUCTED FROM MY PRIZE AMOUNT WILL BE REFUNDED TO ME AFTER FILING INCOME TAX RETURN OR NOT.

  6. Nachi says:

    If I am playing with my money for which i have payed tax and my friend is playing with his money for which he has paid tax. In a game with just the two of us, why would either of us be taxed on the winnings?

    • Jay Sayta says:

      Technically tax still will still have to be paid though since there is no owner/organiser, TDS deduction may not be made.

  7. shraddanand dsouza says:

    As per Section 194B of the Income Tax Act, on any winnings above Rs. 10,000/- (as per laws prevailing in financial year 2012-13) it is the responsibility of persons organising or managing the event to deduct 30.90% tax before releasing the winnings.

    My question is
    - Suppose i win Rs. 20,000 in a poker game , as per the Income tax act, TDS will be deducted on entire Rs 20,000 or will it be on 10,000, as the law says TDS any winnings of above 10,000.

    Please suggest

    • Jay Sayta says:

      TDS would be on winnings of Rs. 10,000/-

      • shraddanand dsouza says:

        I won Rs. 15300/- in a rummy game. But i got only Rs 12,088/-. So i was charged a TDS of Rs. 3,212/-.
        Please note: Table joining fees was Rs 3000/- of which 15 percent(i.e Rs.450) will be organizers service fees.

        I want to know if this was correct or did they charge more TDS.

  8. Pravin says:

    Hi Jay Sayta

    If I open Online Account in any Casino site & I have deposited some amount in this Account. After that Any other Person (like my Friend) are deposited more money in my Account.

    If I Withdraw this money without playing or any winnings it is Taxable ?
    How much tax apllicable for this?

    Pls. Reply me on my E-mail : praving99@rediffmail.com

    Thanks

  9. Sidharth says:

    Hi ,

    If a senior citizen wins a lottery of 30 lakh and he has no other income. and TDS is deducted for the winning prize. Is he liable to file income tax return?

  10. ayush khandelwal says:

    Hey, I have won 8000$ in poker. But I dont know how to file income tax. Can you please explain the procedure to file income tax. My email id ninni.khandelwal@gmail.com

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