BAJAJ BROKING
August 06, 2025
7 mins read
Section 194B of the Income Tax Act, 1961, mandates the deduction of Tax Deducted at Source (TDS) on income received from certain types of winnings. This includes winnings from any lottery, crossword puzzle, card game, game show, betting, or any other game of any sort. The primary objective of this section is to ensure that taxes on such income are collected at the point of payment itself. The entity or person making the payment of these winnings is responsible for deducting the prescribed percentage as TDS before disbursing the net winning amount to the recipient. This provision applies regardless of whether the winnings are in cash or in kind.
Section 194B applies to a specific set of income types:
Lotteries: Winnings obtained from state or private lotteries.
Crossword Puzzles: Income derived from solving crossword puzzles.
Card Games: Winnings from card games, which can include various forms of card-based competitions.
Game Shows: Prizes or winnings from television game shows or similar contests.
Betting: Income from betting activities.
Other Games of Any Sort: This is a broad category encompassing various other contests, games, or events where prizes are awarded based on skill, chance, or a combination thereof. This includes online games, contests, and other similar activities where monetary or in-kind prizes are distributed.
Section 194B specifies both the rate of TDS and the threshold limit below which no TDS is required to be deducted.
Type of Income Source | Threshold Limit for TDS Deduction | TDS Rate |
Lotteries, Crossword Puzzles, Card Games, Game Shows, Betting, Other Games of Any Sort | Exceeding ₹10,000 | 30% |
As per Section 194B, TDS is applicable on winnings from lotteries, crossword puzzles, card games, game shows, betting, and any other games when the winning amount exceeds ₹10,000. If the winning amount is ₹10,000 or less, no TDS is deducted under this section. However, if the winning amount crosses this threshold, the entire winning amount, not just the portion above ₹10,000, becomes subject to TDS. The flat rate of TDS is 30% on the gross winning amount. This rate is uniform, irrespective of the winner's income tax slab. Additionally, a surcharge and health and education cess are applied to this 30% TDS, resulting in an effective deduction rate of 31.20% (30% + 4% cess) for winnings up to ₹50 lakh. If winnings exceed ₹50 lakh, surcharge applies at 10% or 15% depending on the total income, further increasing the effective TDS rate.
In-Kind Winnings: Section 194B also applies when winnings are received in kind (e.g., a car, a house, jewellery) instead of cash.
Tax Payment Before Release: In such cases, the payer (the person or entity distributing the prize) is required to ensure that the tax due on the fair market value of the non-cash prize is paid before releasing the prize to the winner.
Payer's Responsibility: The payer has the option to collect the TDS amount from the winner in cash or to deposit the equivalent tax amount themselves and then recover it from the winner. The prize cannot be handed over until the TDS obligation is fulfilled. The fair market value of the prize is considered for TDS calculation.
Winnings falling under Section 194B are subject to a specific tax treatment:
Gross Winnings Taxed: The entire gross winning amount, after it crosses the ₹10,000 threshold, is subject to TDS. No deductions are allowed from this winning amount, meaning no expenses incurred to earn the winning (e.g., purchasing lottery tickets) can be set off against it.
Flat Tax Rate: The income is taxed at a flat rate of 30% under Section 115BB of the Income Tax Act, separate from other income sources. This means these winnings are not subject to the individual's regular income tax slab rates.
No Expense Deduction: Expenses incurred in participating in the lottery, game, or contest are not deductible. For example, if someone spends ₹5,000 on lottery tickets and wins ₹15,000, TDS is calculated on the full ₹15,000, not on the net ₹10,000.
Surcharge and Cess: In addition to the 30% tax, a surcharge and health and education cess are applicable, as detailed previously, increasing the effective tax rate.
ITR Filing: The winner must report these winnings in their Income Tax Return (ITR) under "Income from Other Sources." The TDS deducted is reflected in Form 26AS and can be claimed as a credit against the final tax liability. If the actual tax liability on total income is less than the TDS deducted, the excess TDS may be refunded.
Non-compliance with the provisions of Section 194B can lead to penalties for the person or entity responsible for deducting TDS.
The person in charge of deducting TDS may be obliged to pay interest at the rate of 1% per month, or a portion of it, from the day on which the tax was deductible until the date of the actual deduction if they neglect to deduct the tax or deduct less than the required amount.
Interest at the rate of 1.5% per month, or a portion of it, may be assessed from the date of deduction to the date of actual deposit if the deducted TDS is not deposited with the government within the allotted time.
In certain cases, if the payer fails to deduct or deposit TDS, the expenditure (e.g., the prize money itself if it were an expense) might be disallowed for tax purposes, though this is less common for prize winnings.
Additional penalties may include a sum equal to the amount of tax not deducted or not paid, and prosecution in severe cases of non-compliance.
Here is an example illustrating the calculation of TDS under Section 194B:
Scenario: An individual wins ₹50,000 from an online quiz contest.
Item | Amount (₹) | Calculation |
Gross Winnings | 50,000 | |
TDS Rate | 30% | |
TDS Amount | 15,000 | 50,000 × 30% |
Health & Education Cess (4%) | 600 | 15,000 × 4% |
Total TDS Deducted | 15,600 | 15,000 + 600 |
Net Payout to Winner | 34,400 | 50,000 - 15,600 |
In this example, since the winnings exceed the ₹10,000 threshold, TDS is deducted on the entire ₹50,000. The effective TDS rate, including cess, results in ₹15,600 being withheld by the payer, and the winner receives ₹34,400. This TDS amount will be reflected in the winner's Form 26AS, which they can claim as a tax credit while filing their Income Tax Return.
Gross Amount Taxed: TDS is deducted on the gross winning amount, not the net amount after deducting expenses.
No Expense Set-off: No expenses incurred to participate in the contest or game can be set off against the winnings.
Mandatory ITR Filing: Winnings, even if TDS is deducted, must be reported in the Income Tax Return.
Form 16A: The winner should receive Form 16A from the payer as proof of TDS deduction.
Threshold Limit: The ₹10,000 threshold applies per winning. If a person wins multiple times, each winning is considered separately unless aggregated as per rules.
Payer's Responsibility: The person or entity distributing the prize is solely responsible for TDS deduction and deposit.
Taxable at Flat Rate: These winnings are taxed at a flat 30% (plus cess and surcharge) under Section 115BB, irrespective of the winner's total income or tax slab.
No Deductions: No allowance for expenses related to earning the prize money.
In-Kind Winnings: For non-cash prizes, the tax must be paid before the prize is released, typically based on its fair market value.
Section 194B of the Income Tax Act addresses the taxation of winnings from lotteries, games, and contests by mandating TDS deduction. This provision applies to both cash and in-kind prizes exceeding a specified threshold, with a flat tax rate. Understanding its applicability, deduction rates, and implications for non-cash rewards is important for participants and payers to comply with tax regulations and manage their financial obligations.
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Yes, Section 194B applies to winnings from lotteries, games, or contests in India, regardless of the recipient's nationality. If a foreign national wins a prize in India that exceeds the ₹10,000 threshold, TDS will be deducted as per the provisions of Section 194B, unless specific Double Taxation Avoidance Agreements (DTAA) apply.
Section 194B applies to winnings from "any game of any sort." While traditional referral bonuses or cashback rewards that are not contingent on winning a game might fall under other income tax sections (e.g., Section 194R for benefits/perquisites), if the bonus or reward is directly tied to winning a contest or game on the platform, Section 194B could apply. The exact applicability often depends on the specific terms and nature of the reward.
No, a winner cannot transfer their prize to another person to avoid tax deduction under Section 194B. The TDS liability arises at the point the prize is won, and the payer is obligated to deduct tax from the person who is legally entitled to the winnings. Any attempt to transfer the prize before tax deduction would not alter the original winner's tax liability.
While the Income Tax Act has specific provisions for taxation of Virtual Digital Assets (including cryptocurrencies), Section 194B specifically covers winnings from lotteries, games, and contests. If cryptocurrency is received as a prize from such an activity, then Section 194B would apply to its fair market value at the time of receipt, in addition to any other applicable taxes on VDA.
If winnings are received in multiple instalments, Section 194B generally applies if the aggregate winnings from the same source in a financial year exceed the ₹10,000 threshold. The payer is responsible for deducting TDS once the cumulative winnings cross this limit, and for subsequent instalments. Each instalment may or may not be individually above the threshold, but the cumulative amount matters.
The minimum threshold limit for TDS deduction under Section 194B is ₹10,000. If the winning amount from a lottery, crossword puzzle, card game, game show, betting, or any other game of any sort is ₹10,000 or less, no TDS is required to be deducted under this section.
The person or entity responsible for paying out the winnings from lotteries, crossword puzzles, card games, game shows, betting, or any other game of any sort, is responsible for deducting TDS under Section 194B. This could be the lottery organiser, the game show producer, the online gaming platform, or any other entity disbursing the prize.
Under Section 194B, if the winning amount exceeds the ₹10,000 threshold, the entire winning amount is taxable and subject to TDS. It is not just the portion above ₹10,000 that is taxed. For example, if the winning is ₹15,000, TDS is calculated on the full ₹15,000.
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