Casual Income: A Detailed Guide on Tax Treatment of Casual Income
Income can be of different types, from salary to business profits, rent, and interest on investments. The concept of casual income is different from all of these standard types of income. Since lottery and betting money are a one-time thing, you may believe you are exempt from paying income tax, but this is untrue. To deter winnings from gambling or betting, the Indian government imposes a fixed tax rate on casual income. The Income Tax Act's Section 115BB addresses the tax rate applied to casual income. This article discusses the definition, rate, and computation of casual income to income tax.
Table of Contents
What is Casual Income in Income Tax?
Casual income is defined by income tax as an additional source of income that is not a consistent source of income. It is a one-time event that is not covered by any contracts or expectations for the future. The unpredictability of casual income defies any known distributions or trends. Moreover, it includes any unplanned and unexpected capital inflows. You should be aware of some of the most crucial provisions of casual income to comprehend what it means. These are:
It is not possible to deduct any expenses associated with a casual income. You won't lose any of your earnings if you have to pay for anything to make extra cash. The price of purchasing a lottery ticket will not be excluded from the money obtained.
Winnings over Rs. 10,000 from activities such as lotteries, card games, or crossword puzzles are subject to TDS (tax deducted at source) under Section 194B. The effective TDS rate, including cess and surcharge, is 31.2%. The organization that distributes the prize money deducts the TDS.
You are not allowed to deduct any losses, and any casual losses you incur will not be deducted from any of your income.
Example of Casual Income
Casual income examples center on lucrative windfall possibilities, such as:
Lottery Jackpots: Winning large amounts in lottery drawings where the result is by chance.
Quiz Shows: Using knowledge and fast thinking to win rewards on quiz shows.
Poker Games: Profiting from winning moves in poker games when victory is by ability and strategy.
Sports Betting: Making money from profitable wagers on sporting events using forecasts and analysis is known as sports betting.
Crossword or Puzzle-Solving: Demonstrating mental acuity and problem-solving abilities by solving crosswords or puzzles and earning rewards.
Income Not Considered Casual Income
Some earnings are not included in the category of casual income, even though it encompasses a wide range of revenues. The following earnings are not considered casual income:
Receipts from a business, career, or occupation
Capital gains assessed under Section 45
Any receipts included in employee's pay, like bonuses or requirements.
Casual Income Tax Rate
Casual income is taxable under Section 115BB of the Income Tax Act and is charged under the "Income from Other Sources" heading. The following are the tax ramifications for your casual income:
A 30% flat tax rate is applied to your casual income; after deducting taxes, the rate is 31.2%.
If you receive a prize in kind, such as a car, the distributor is required to ensure that the tax has been paid before giving it to you.
If your prize money exceeds Rs. 10,000 in cash, demand draft, or check, Section 194B will deduct 31.2% TDS before you can get your money back.
If you get a cash and in-kind award, your taxes are determined by the market value of the in-kind prize and the money you received.
If your winnings from the horse race surpass Rs. 10,000, TDS will be applied.
Casual Income Tax Section
Section 115BB of the Income Tax Act of 1961 governs the taxation of your casual income. This section's primary goal is to prevent tax evasion and make sure there are no disparities in the sources of revenue. This category includes the following types of casual incomes:
Crossword puzzles
Lotteries
Races that involve horse races
Any games involving betting or gambling
Card games
Section 115BB will tax your casual income at a flat rate of 30%. This tax rate is subject to additional surcharges and cess, for 31.20%. Any expenses you incur do not reduce your overall casual income. Additionally, such income does not qualify for the advantages of any basic exemption limit. Deducting TDS from your taxable income is also crucial under this provision. The individual making the payment must deduct TDS under Section 194B or 194BB if their taxable income exceeds Rs. 10,000.
Section 194B: Crossword puzzle or lottery winnings
Section 194BB: Horse race winnings
How to Declare Casual Income
During the online ITR-1 filing process, you must disclose your casual income. Under the category "Income from Other Sources," this income is subject to taxation. If you have prize money, you must report it on your tax returns. Additionally, you provide the TDS certificate as evidence that you have paid all taxes on your gains.
Calculation of Casual Income
Examine the following examples to learn how to determine your taxable casual income.
When A won Rs. 1,000,000 from gambling, B was in charge of giving him the winnings. B must exclude 31.2% TDS from the winning sum. He has to subtract Rs. 31,200 from the total amount by Section 115BB.
If A wins Rs. 20,000 in cash and an automobile valued at Rs. 80,000 in a crossword competition, and B pays the money and transfers the car, B must deduct tax at a rate of 31.2% from the winnings. Since this is insufficient, B must deduct Rs. 20,000 from the winnings and collect Rs. 11,200 in taxes from A.
Conclusion
The Income Tax Act's Section 115BB addresses the flat 30% tax rate applied to casual income. These salaries are not eligible for exemptions or deductions. When submitting your ITR-1, you can include your casual income under the "Income from Other Sources" heading. To prevent inconsistencies while completing your ITR, you must understand how your casual income is taxed and computed.
FAQ
Q1. What is casual income for tax purposes?
Any unforeseen, one-time earnings, such as lottery winnings, sports wagers, game show awards, etc., are considered casual income. It is subject to taxation under the "Income from Other Sources."
Q2. What is a casual taxable person?
An individual who occasionally participates in business activities that involve the supply of goods or services, or both, as a principal, agent, or in any other capacity in a State or Union territory where they do not have a permanent place of business is referred to as a "casual taxable person."
Q3. What is the threshold limit applicable to a casual taxable person?
There is no minimum requirement for casual taxable persons to register under GST. Those who solely sell handicrafts register if their yearly total revenue surpasses Rs. 20 lakhs.
Q4. How is Casual income taxed in India?
A 30% flat tax rate plus a 4% relevant health and education cess are applied to casual income, resulting in an overall effective rate of 31.2%.
Q5. Can I set off losses against Casual income?
Casual income cannot be deducted from losses.
Q6. What is the tax rate on the lottery?
30% is the tax rate charged on the lottery.
Q7. Is a rebate allowed on casual income?
According to Chapter VI A, you are eligible for a refund if, after deductions, your taxable income is less than Rs. 5 lakhs. Once taxes are deducted, you can claim this refund. The reimbursement is not available to HUFs, businesses, or companies.
Q8. How is casual income tax calculated?
Temporary income is classified as "Income from Other Sources" under the Income Tax Act and is taxable under Section 115BB. Here are the tax ramifications of casual income: You are subject to a set tax rate of 30% on your casual income. Including cess raises the overall tax rate to 31.2%.
Q9. What is GSTR 10 for a casual taxable person?
A taxable individual whose GST registration has been revoked or voluntarily surrendered is required to file Form GSTR-10. We call it the Final Return. This form acts as a statement of the stocks that the taxpayer owned on the day before the cancellation went into effect.
Q10. What qualifies as casual income under Indian tax laws?
Income from lotteries, betting, crossword puzzles, and prize winnings is classified as casual income.
Q11. Is casual income taxed differently from salary or business income?
Yes, casual income is taxed at a flat rate of 30% plus cess without basic exemption benefits.
Q12. Are gifts from reality shows or competitions considered casual income?
Yes, cash prizes and luxury items won in reality shows are subject to TDS before being received by the winner.
Q13. Can expenses related to earning casual income be deducted?
No, deductions or exemptions are not allowed against casual income, unlike business or professional income.
Q14. How is casual income from online gaming taxed?
Online gaming winnings above ₹100 are subject to 30% TDS deduction at source.
Q15. Are foreign lottery winnings taxed under Indian law?
Yes, foreign lottery income is taxable in India, and tax treaties determine additional liabilities.
Q16. What happens if casual income is received in kind (e.g., cars, vacations)?
The market value of non-cash prizes is taxed at 30%, which winners must pay before taking possession.
Q17. Can casual income be set off against business losses?
No, casual income cannot be adjusted against losses from business or any other income sources.
Q18. How does the GST law impact casual income?
GST does not apply to casual income, but indirect tax may be levied on prize distribution by organizers.
Q19. Is there a penalty for not reporting casual income in ITR?
Yes, non-disclosure can lead to penalties, interest, and reassessment by the tax department.
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