Any winnings from:
- Crossword puzzles,
- Races including horse races,
- Card games and other games of any sort,
- Gambling or betting of any form or nature whatsoever,
are chargeable to tax under Section 56 under the head 'ncome from other sources'.
1. Special rate of Income-tax in case of winnings from lotteries, crossword puzzles, races, etc. [Section 115BB]:
Although, winnings from lotteries, etc. is part of total income of the assessee, such income is taxable at a special rate of Income-tax, which at present, is
- 30% + education cess @ 2% + SHEC @ 1%.
Deduction of any expenses, allowance or loss not allowed from such winnings:
According to section 58(4), no deduction in respect of any expenditure or allowance, in connection with such income, shall be allowed under any provision of the Income-tax Act. However, expenses relating to the activity of owning and maintaining race horses are allowable.
In other words, the entire income of winnings, without any expenditure or allowance, will be taxable. In fact, deduction under sections 80C to 80U on Deductions from Gross Total Income will also not be available from such income although such income is a part of the total income.
As lottery income is taxed at flat rate, the basic exemption of income (say Rs. 5,00,000) is not available to the assessee.
2. Grossing up of Lottery Income, etc.:
As in the case of some other incomes, there is also a provision for tax to be deducted at source from income from winning of lotteries, horse races and crossword puzzles. The rate of TDS in the case of such incomes is 30% if the income exceeds Rs. 10,000. Such tax deducted at source is income and the amount received is net income after deduction of tax at source. In this case, such net income will have to be grossed up as under:
If a person wins a lottery of Rs.2,00,000, tax must have been deducted @ 30% and net amount received by the assessee would be Rs. 1,40,000 (2,00,000 – 60,000). Grossing up would be done as:
1,40,000 × [ 100 ÷ (100-30)] = Rs. 2,00,000