Income tax and lottery winners: This is the treatment by the taxman, check TDS limit too

Every income falls under a specific tax bracket. By filing Income Tax Returns (ITR), you can claim refunds over taxes paid to the Income Tax Department. However, the system and tax formulation is different when it comes to winning money from lotteries, races, bets etc. Yes, it is mandatory for lottery winners to pay taxes on income they thus received. The income tax rates are different on these kind of incomes for both Indian citizens and NRIs. These are defined as casual income which means any receipts that are of a casual nature. 

However, there are also a few criteria, which needs to be understood. For example, by how much one has to pay as tax and what is the minimum limit. Is there any TDS levied? Here’s what you need to know! 

According to Income Tax department, advance tax is payable on total income which includes capital gains and casual income (i.e., income from lotteries, crossword puzzles, etc.).

However, it is practically not possible to estimate the income from capital gain and casual income in advance. Therefore, in such cases it is provided that if any such income arises after the due date of any instalment, then the remaining tax calculated on capital gain and casual income shall be paid in remaining instalments of capital gains which are due.

If the entire amount of tax is so paid then no interest for late payment is levied.

For Indians, income from lotteries, races including horses and crossword puzzles - a 30% tax rate is levied by the department under section 194B. While, there is 5% tax applicable on commission on sale of lottery tickets under section 194G of Income Tax Act. 

As for NRIs, the tax rate starts from 34.32% depending upon the nature of winnings. While for commission on sale of lottery tickets, one has to pay tax rate from 5.72%. 

Going forward, it needs to be noted that, there is tax deducted at source (TDS) feature available on such income as well. However, TDS is levied up to a certain level. As per the department, no TDS is applicable if the amount does not exceed Rs 10,000 during a financial year from lottery or crossword puzzles. 

Similarly, no TDS will be applied on amount below Rs 15,000 during a financial year from commission paid on sale of lottery ticket. 

Further, the department highlights that, no loss can be set off against income from winnings from lotteries, crossword puzzles, race including horse race, card game, and any other game of any sort or from gambling or betting of any form or nature.

Hence, if you win lottery or from some other form of betting, then ensure you are aware of the above mentioned income tax rules.