Understanding 194G: TDS on Lottery Winnings
To win a lottery can seem like a dream come true. But before you celebrate, there is an important aspect to consider i.e. taxes. In India, under Income Tax Act 1961 have specific provisions related to tax deductions on lottery winnings. 194G is the one you should know about.
This section includes Tax Deducted at Source (TDS) on lottery, crossword, and similar game winnings. But what exactly does it include, and how does it affect you? In this guide, we’ll break down the key details of 194G, helping you navigate the rules and ensure your winnings don’t come with surprises.
Table of Contents
What is 194G?
Section 194G of the Income Tax Act deals with the tax that needs to be deducted from commissions, rewards, or prizes won from lottery tickets. It specifies who is responsible for deducting this tax and the rate at which it should be deducted.
Lotteries are often seen as a way to make quick money. People buy them hoping to win a large sum. However, if you win a lottery, you'll need to pay tax on your winnings. This tax is deducted at source according to Section 194G.
Scope of 194G
If you earn money from selling lottery tickets (including stocking, distributing, and buying them), you'll need to pay tax on any commissions, rewards, or prizes you win.
The person paying you this income must deduct income tax before giving it to you if the amount is more than Rs. 15,000. This is called Tax Deducted at Source (TDS).
Applicability of 194G Provisions
194G lays down the provisions for TDS deduction at 5% rate when the receipt of-
Commission
Remuneration
Prize
On the sale of lottery tickets, further, the section applies that any person who is paying such type of income to another person who has been
Stocking
Distributing
Purchasing
Selling the lottery tickets
TDS Rate under 194G
A tax of 5% will be deducted from your lottery winnings. Starting October 1, 2024, this rate will decrease to 2%. There are no additional taxes like surcharges or cess on this rate. If you don't provide your PAN, the tax rate will be 20% instead. If you win less than Rs. 15,000, no tax will be deducted.
Who is Liable to Deduct TDS under 194G?
The responsibility to deduct tax under 194G falls upon the following organizations-
Government
Lottery department
Lottery agents authorized under the department
Any person who is responsible for conducting a lottery
When is Tax Deducted under 194G?
Tax is deducted from lottery winnings when the money is paid to you. This can happen when the money is added to your account or when you receive it in cash, check, or other ways. It doesn't matter if the money is first put into a "suspense account" or another account.
If you win more than Rs. 15,000 from selling lottery tickets in a year, the person paying you must take out tax before giving you the money. This is called Tax Deducted at Source (TDS).
A person paying can deduct the tax at these times-
When the money is added to your account.
When you receive the payment, whether it's in cash, check, electronic transfer, or another way.
Who is liable to TDS under 194G?
The individuals who can earn income through the following ways-
Commission earned from selling lottery tickets
Remuneration received for activities related to lottery tickets, such as stocking, distributing, or purchasing them.
Prize money won by lottery ticket sellers (excluding winnings from tickets purchased by the sellers themselves).
Responsibilities of the Deductor under 194G
To file the TDS returns every quarter from 26Q that reports deducted tax on government
To issue the TDS certificates that provide taxpayers with the certificate in form 16A. It includes details about the amount of tax deducted and deposited.
What is the Due Date to Deposit TDS under 194G?
If the tax is deducted in March: It must be deposited by April 30 of the next financial year. For example, if the tax was deducted in March 2024, it must be deposited by April 30, 2024.
If the tax is deducted in any other month: It must be deposited within seven days of the end of that month. For example, if the tax was deducted in September 2024, it must be deposited by October 7, 2024.
Provision of Lower / NIL TDS deduction: The payee can fill the application form no 13 which requests an assessing officer for low TDS deduction or NIL. However, the payee receives the right certificate from the assessing officer. Section 206AA (4) states that no certificate for low or nil deduction is granted unless the application includes the PAN of the applicant.
Consequences of Non-Compliance
If you don't follow the rules of Section 194G, you may face penalties and extra taxes. These can include:
Interest on late tax deposits: If you don't deposit the tax on time.
Penalty for not deducting or deducting too little tax: If you didn't deduct the correct amount of tax.
Extra taxes: You may need to pay extra taxes on the amount you didn't deduct.
Conclusion
Section 194G of the Income Tax Act is about the tax that needs to be deducted from commissions, rewards, or prizes won from selling lottery tickets. It specifies who is responsible for deducting this tax and the rate at which it should be deducted.
FAQs
Q1. What is the maximum limit up to which no tax needs to be deducted under Section 194G?
No tax is deducted if the commission amount does not exceed Rs. 15,000 in a financial year.
Q2. Are there any exemptions under Section 194G?
No, there are no specific exemptions under Section 194G. TDS is applicable to all commissions or brokerage payments exceeding Rs. 15,000 in a financial year.
Q3. What is the highest amount that can be received without TDS under Section 194G?
The highest amount of commission that can be received without TDS deduction is Rs. 15,000 in a financial year. If the amount exceeds this threshold, TDS will be deducted on the entire amount.
Q4. What is the TDS rate for brokerage under Section 194G?
The TDS rate for commissions or brokerage under Section 194G is 5%.
Q5. Can the threshold limit of Rs. 15,000 be applied to multiple payments made to the same recipient?
The threshold limit of Rs. 15,000 is applicable to each person for the entire financial year. If the total payments to one recipient exceed Rs. 15,000 in commission or brokerage during the year, TDS must be deducted on the entire amount, not just the excess over Rs. 15,000.
Q6. How is the deducted TDS deposited with the government?
The TDS must be deposited with the government within seven days from the end of the month in which the deduction is made, except for the month of March, when it must be deposited by April 30 of the following financial year.
Q7. Can TDS on lottery winnings be refunded?
No, TDS on lottery winnings under Section 194B cannot be refunded directly. If a prize is won, like a car or a trip, the organizers withhold the prize until the winner either pays the applicable tax or proves that they have already paid the tax. However, any excess TDS deducted can be claimed as a refund when filing an income tax return.
Q8. What is the rate of TDS under Section 194G?
The applicable rate of TDS under Section 194G is 5% on commission or brokerage paid. This rate is subject to change based on amendments to tax laws.
Q9. Can TDS be deducted from lottery winnings from foreign lotteries?
TDS generally does not apply to lottery winnings from foreign lotteries unless specific provisions exist in the tax treaty between India and the country where the lottery is based.
Q10. Is TDS applicable to lottery winnings from government-organized lotteries?
Yes, TDS is applicable to lottery winnings from government-organized lotteries. The TDS is typically deducted at the applicable rate, but specific rules and exemptions may vary based on the lottery’s structure.
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