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What is the tax implication of online contest winnings?

If you happen to win big in a contest, you would need to ensure you meet all your tax obligations for the award money

  • TDS (Tax Deducted at Source) is applicable in the case of prize money. When the price amount exceeds ₹10,000, the winner is given the amount after deducting TDS at the applicable rate under Section 194B of Income Tax Act. 
  • A flat rate of 30% is applicable on income generated from these sources - i.e. game shows, contests etc. The Finance Act of 2001 expanded the description of such award money to include online winnings as well. Further, an applicable cess will be levied on the taxable amount. If the prize money amount exceeds ₹10 lakhs, you will need to pay a surcharge of 10%.
  • It is interesting to note that income from such sources is not exempted, even if the person falls under lower slabs of income tax. This is to say that the entire income will be taxed at a flat rate of 30%. For instance, let us assume that you have a salary package of ₹6 lakhs per annum (and no income from other sources), and win ₹ 10 lakhs in an online contest. Even though you’re earning under the lower tax-slab, you will be liable to pay a tax of 30% on the award money. 
  • You will also be unable to claim deductions or exemptions on the prize money, even if it is invested in tax-saving instruments. You will only be able to avail tax exemptions if you donate the award money to the government or to the award-granting entity.
  • Winnings in Kind: When winnings are given in kind - such as cars - the award-granting entity will need to ensure that the winner pays a tax of 30% of the market value of the item + cess, before delivering the prize item. In a few cases, distributors may transfer the burden of tax payment on themselves. For eg, if you win a car worth ₹10,00,000/- then a tax amount of around ₹3 lakhs + cess (at 30% + cess) will have to be paid either by you or the distributor before the prize is handed over. 

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