Online games that reward you with money has become a favourite past time for many. If you played poker or rummy on Diwali or are a Dream11 team player you must know the money you win is not entirely yours. The prize money is your income from other sources that will attract taxes just like your primary income. The prize money contestants win in Kaun Banega Crorepati or the cashbacks you receive in online shopping are also taxed.
"The provisions of Section 115BB of Income Tax Act, 1961 mandates a flat tax rate of 30 per cent (plus surcharge and cess) on such income, without any deduction or exemption or slab rate," says Gouri Puri, Partner, Shardul Amarchand Mangaldas & Co.
The winner doesn't have to worry about paying taxes. As per Section 194B, the organisers are responsible for deducting TDS mandatorily where the winnings go above Rs 10,000. All taxpayers have to do is include the prize money under 'income from other sources' while filing the return and submit the TDS certificate as proof that they have paid all the tax due against the prize money.
If the organiser has not deducted the TDS, it is the prize winner's responsibility to pay advance tax on the same, even if you win less than Rs 10,000. For example, on Rs 1 lakh prize money in a game show, in all likelihood, the organiser will deduct the flat rate of TDS at 30 per cent (effective rate including cess 31.2 per cent) and you will receive Rs 68,800.
"Rs 31,200 should be deducted as TDS, if not deducted then the assessee is required to deposit Rs 31,200 tax + interest under section 234 B and 234C. To save the interest, if TDS has not been deducted, it is advisable to deposit advance tax of Rs 31,200. In hand income to the winner would be Rs 68,800 (Before Interest u/s 234B, 234C). Secondly, the assessee cannot save any income tax on it by way of investing any fund or any other way," explains chartered accountant Ankit Gupta.
Section 87-A rebate
Although the tax on gaming show winnings is flat and irrespective of your slab rate, the section 87-A rebate does apply to those whose taxable income including the prize money remains below Rs 5 lakh. So, if flat 31.2 per cent TDS has been deducted on the game money, the taxpayer can claim the 87-A relief while filing the income tax return (ITR).
"The assessee (winner) can claim relief u/s 87-A while filing his ITR. Thereafter, the excess amount deducted as TDS will be refunded by the Income Tax department," says Gupta.
Prize money taxable for all
If you are a student or a homemaker with no other income, do you still have to pay tax on game show money? Unfortunately, yes. "As far as the income from gambling/ lottery/ winning from games is concerned, the quantum of tax is the same in the hands of the student/ homemaker or the salaried person," says Puri.
However, those with no other income other than the winning money (on which the TDS has been deducted) should file the ITR to claim the 87-A rebate if the prize money is above the basic exemption limit but less than Rs 5 lakh. This rebate could be up to Rs 12,500.
What happens in case of gifts in kind
If instead of cash prize, you end up winning a car, flat or home appliances, the taxation becomes quite complex as 30 per cent tax (excluding cess and surcharge) is still to be paid.
"Winnings in kind poses a tax withholding issue for the payer as the law casts an obligation on payer to withhold taxes on entire value of winnings irrespective of part or whole of winnings is in kind. Practically, if the cash winnings is not sufficient to pay tax at 30 per cent (plus surcharge and cess) on whole value of winnings then, either payer pick the tab of tax cost and gross it up accordingly or ask the winner to remit the cash equivalent to withholding tax (or shortfall), as per the terms of the game," says Puri.
It means, either the organiser (payer) will bear the TDS itself, making it part of the winning deal or the contestants will be informed beforehand that winners will have to deposit the TDS in cash before they may take home the gift in kind.
What about cashbacks
You periodically receive lucrative cashbacks from various e-commerce websites, credit card and e-wallet companies. This makes you hunt for more of such deals. What you may not know is such cashbacks can attract taxation in certain situations.
"If received for buying goods and services for personal consumption, cashback is taxable as defined under Section 56 (2) (x) which governs the taxation of gifts. Gifts whose value is up to Rs. 50,000 in a financial year are not taxable. However, if the limit is exceeded, the total value of the gifts is taxed at the tax payer's slab rate," says Adil Shetty, CEO, BankBazaar.com.
It means if the total amount of cashbacks along with other gifts in a year exceeds Rs 50,000, you have to pay tax on the exceeded amount. Note that the Rs 50,000-limit includes all gifts. Say, for example, you buy an AC worth Rs 50,000 on which you get a cashback of Rs 20,000. Now if a non-relative or a friend has gifted you a jewellery worth Rs 40,000 in the same financial year, you'll have to pay tax on Rs 10,000 (Rs 40,000 + 20,000 - Rs 50,000).