Casual income, as the name suggests, is non-recurring in nature. It's an income which is earned by chance and not likely to occur again in a year. This earning is neither anticipated nor provided for in any agreement.
For example, incomes from winning lotteries, card games, game shows, horse races, crossword puzzles or any other games come under casual incomes. Lotteries include winning money through prizes, by drawing of lots or by chance.
Card games or other games include any game show, be it an entertainment program on television or electronic medium in which people take part in a competition to win prizes.
The frequency of casual income is uncertain and not fixed. Apart from these, any income which is unanticipated and unplanned is also called casual income. The question is, do you have to pay tax on casual income? Yes, like most other types of incomes, casual income is also taxable.
What’s not Casual Income?
Any income that occurs as a part of an agreement and has a likelihood of recurring in future will not be treated as casual income. Similarly, money received from the sale of property or investments, receipts from business or occupation and bonuses given to employees is not casual income.
Tax implication for Casual Income
Casual income is chargeable under the head ‘Income from other Sources’ under section 115BB of the Income Tax act.
- You have to pay tax on casual income at a flat rate of 30% which, after adding the cess, amounts to 31.2%.
For example, if your casual income is ₹3 lakh, then a tax of ₹ 90,000 will be applicable on the amount along with the education cess. Casual income is included in the gross and total income, but while assessing tax liability of an individual or firm, it is separated from overall total income.
- If the prize money is more than Rs, 10,000 and received in cash, cheque or demand draft, then the winner will get the winning amount after the TDS (Tax Deduction at Source) at 31.2%.
- If the prize is received in kind, say a car, the distributor of the prize must ensure that the tax is paid before awarding the prize.
- If the prize money is received in both cash and kind, then the total tax will be calculated according to the money received in cash and on the market value of the prize given in kind.
Other Conditions for Tax on Casual Income
- No expenditure is allowed as a deduction from casual income
- No deduction under the section 80C or 80D of the Income Tax Act is allowed from such income.
- The winner cannot avail the benefit of basic exemption limit because it is not applicable for this type of income.
How to calculate tax for Casual Income?
Casual income is taxed under section 115BB of the Income Tax Act, under the heading "Income from Other Sources." Casual income is taxed at a flat rate of 30%, which is increased to 31.2 percent when the Education cess is added.
- Casual Income is subject to tax under the head “Income from Other Sources”.
- Taxpayer has to pay tax on casual income at a rate of 30% which, after adding the cess, amounts to 31.2%.
- There are no expenses that can be deducted from casual income.
- No deduction under the Section 80C or Section 80D of the Income Tax Act is allowed from such income.
- The benefit of basic exemption limit cannot be availed on this type of income.