Casual Income in Income Tax: Meaning, Tax Rate, Examples and How to Declare?

What is Casual Income in Income Tax?

In Income Tax, casual income is an extra financial gain that cannot be considered a steady revenue stream. It is a one-time gain that occurs suddenly and is not a result of any future expectations or contractual agreements.

Understanding casual income involves knowing some important points:

• Expenses related to casual income aren't deductible. Any costs incurred to earn casual money can't be subtracted from the earnings. For example, the expense of buying a lottery ticket can't be deducted from the income it generates.
• According to Section 194B, winnings from activities like lotteries, card games, or crossword puzzles are subject to TDS (tax deducted at source) if they exceed Rs.10,000. The TDS rate is 31.2%, inclusive of cess and surcharge. The organization distributing the prize money is responsible for deducting TDS.
• You can't offset any losses against casual income. If you experience a casual loss instead of income, that amount won't be deducted from any other income you have.

What is the Casual Income Tax Rate?

Under the Income Tax Act, casual income falls under the category of "Income from Other Sources" and is subject to taxation under Section 115BB.

Here are the tax implications for your casual income:

• A flat tax rate of 30% is applied to your casual income. Including cess, the effective rate becomes 31.2%.
• If you receive a prize in kind, such as a car, the distributor must ensure that the applicable tax has been paid before awarding it.
• For prize money received in cash, demand draft, or cheque exceeding Rs.10,000, a deduction of 31.2% TDS is made under Section 194B before you receive the money.
• If you receive both a prize in kind and cash, your total tax liability will be calculated based on the cash received and the market value of the prize in kind.
• TDS is applicable to your winnings from horse racing if they exceed Rs.10,000.

What is the Example of Casual Income Tax?

Examples of casual income revolve around exciting opportunities for windfalls, including:

• Lottery Jackpots: Winning substantial sums through lottery draws, where luck plays a significant role in determining the outcome.
• Quiz Shows: Earning prizes on quiz shows through knowledge and quick thinking.
• Poker Games: Profiting from successful plays in poker games, where skill and strategy contribute to winning.
• Sports Betting: Gaining profits from successful bets on sports events based on predictions and analysis.
• Crossword or Puzzle-Solving: Winning rewards from solving crosswords or puzzles, showcasing mental acumen and problem-solving skills.

What is the Section for Casual Income Tax?

Under Section 115BB of the Income Tax Act 1961, your casual income is subject to taxation. This section aims to prevent tax evasion and ensure transparency in income sources.

Casual incomes falling under this category include:

• Crossword puzzles
• Lotteries
• Horse races
• Betting or gambling games
• Card games

Your casual income is taxed at a flat rate of 30% under Section 115BB, with an additional surcharge and cess, bringing the total tax rate to 31.20%. Expenses cannot be deducted from your total casual income, and any benefits from basic exemption limits do not apply to such income.

Furthermore, it is crucial to deduct TDS from your taxable income under this section. If your taxable income exceeds Rs.10,000, the entity making the payment must deduct TDS under either Section 194B (for winnings from crossword puzzles or lotteries) or Section 194BB (for winnings from horse races).

Which Income is Not Considered Casual Income?

Some incomes that are not classified as casual income are given below -

• Receipts from profession, occupation, or business.
• Capital gains are charged under section 45 provisions.
• Receipts included in employee’s remuneration such as bonuses or perquisites.

How is Tax Calculated for Casual Income?

Mr. X won Rs.2,00,000 from gambling, and Mr.Y responsible for handing over the winnings must deduct 31.2% TDS from the total amount. Under Section 115BB, the person must deduct Rs.62,400 from the winnings.

In another scenario, in a crossword competition, an individual won Rs.20,000 in cash and a car worth Rs.80,000, and the responsible party will pay the cash and provide the car. While making the payments, the tax must be deducted at a rate of 31.2%. In this case, it is necessary to deduct tax not only from the cash winnings but also from the total winnings. Therefore, during payments, the person must deduct Rs.20,000 from the total winnings and collect Rs.11,200 as tax from the individual.

Section 115BB of the Income Tax Act deals with the tax rates charged on casual income. The tax rate applied is 30%. You cannot claim any deductions or exemptions on these incomes. Casual income can be declared under the head “Income from other sources” while filing ITR-1. Having said that, it is also common to have questions regarding taxes. If you have any tax-related queries or need assistance, you can book a tax consultation with our experts. Get Tax Advisory Services Now!