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Income Tax on Awards & Prizes: Lottery, Game Shows, Puzzle

Updated on: 01 Aug, 2022 12:15 AM

Awards are those which are given to individuals for their talent, skill, achievement and brilliance in a particular field. Film awards, television awards, sports awards, national awards, etc. are given to individuals who performed well in their respective fields. These awards might be national or international. Prizes, on the other hand, are given to individuals who win in a particular form of game. These prizes can be from lottery, horse races, puzzles, etc. and the prize can be given in cash or in kind. Awards and prizes can be given in two ways –

- In cash
- In kind for instance awards in the form of gold, property, car, appliances, etc.

When it comes to awards and prizes, many individuals do not understand their tax implications. They wonder whether the award or the prize that they received would be taxable or not. What do you think?

The incidence of taxation on awards and prizes depend on a lot of factors. Awards might or might not be taxable but prizes are always taxable. Let’s understand why and how –

Awards and their tax implication

When it comes to awards, they are considered to be tax-free if they are approved by the Government of India. The taxability of awards depends on the reason why the award was given, who is giving the award and whether the award was approved by the Central or the State Government. If the award is given in public interest and is approved by the Government, it would be considered tax-free under Section 10 (17A) of the Income Tax Act. The Indian Government has a list of awards which are completely tax-free in the hands of the awardee. These awards include the following –

  • National Awards
  • Nobel Prize if it is notified by the Government under Section 10 (17A) of the Income Tax Act
  • Awards given by the Government to winners of Olympics, Asian Games, Commonwealth Games, etc.
  • Arjuna Award
  • Bharat Ratna Award, etc.

If, however, the award is not approved by the Central or the State Government or it is given by an unapproved authority, it would become taxable in the hands of the awardee under Section 56(2) of the Income Tax Act. The money received under the award would be mentioned under the head ‘income from other sources’ and it would be taxed.

Common examples of taxable awards include the following –

  • Wisden Cricketer Award
  • ICC Cricket Awards
  • Filmfare Awards
  • Grammy Awards, etc.

Prizes and their tax implication

Prizes and winnings are always taxable in the hands of the winner. The amount of prize won would be recorded under the head ‘income from other sources’ and it would be subject to tax as per the provisions of Section 56(2). Examples of taxable prizes include the following –

  • Winnings from lotteries, crossword puzzles, horse racing, etc.
  • Winnings from a game show
  • Winnings from sporting events, etc.

The rate of tax

Awards which are not approved by the Government and prizes are taxed at the rate of 30%. Cess would also have to be added to the tax rate which brings the total tax rate to 31.2%. This rate would be independent of the tax slab rate of the individual. This means that even if the individual’s income falls in the 20% slab rate, winnings from awards and prizes would still be taxed @31.2%. If the prize or winning is received in kind, the market value of the item received is taken into consideration. The tax is, then, levied on the market value of the item.

Deductions and exemptions on income from awards and prizes

No deductions or tax-free exemptions would be allowed to be deducted from the winnings if they are taxable. So, the tax-payer cannot claim deductions under Chapter VI A of the Income Tax Act (Section 80C, Section 80D, etc.) on the winnings which are taxable.

TDS incidence

If the amount of the award or the prize is more than INR 10,000, TDS would have to be deducted from the winnings before paying it to the winner according to the provisions of Section 194B.

Example Anil won a game show on which he received INR 2 lakhs in cash and a car worth INR 10 lakhs. He had income from salary at INR 10 lakhs and income from fixed deposit interest at INR 50,000. He invested INR 1.5 lakhs in Section 80C and INR 20,000 towards his health insurance policy. His tax liability would be calculated as follows –

Tax on winnings

Cash prize received INR 2 lakhs
Market value of car won INR 10 lakhs
Total taxable winnings INR 12 lakhs
Tax @ 31.2% INR 374,400

Tax on income

Salary income INR 10 lakhs
Income from other sources (FD interest) INR 50,000
Income from other sources (winnings) INR 12 lakhs
Gross total income INR 22,50,000
Less: Standard deduction on salary INR 50,000
Less: Section 80C deductions INR 1,50,000
Less: Section 80D deductions INR 20,000
Net total income INR 830,000
Tax payable  INR 12,500 + 20% of INR 3,30,000
= INR 12,500 + INR 66,000
= INR 78,500

Total tax payable = INR 374,400 + INR 78,500 = INR 452,900

If you win awards or prizes, check whether they are approved by the Government or not. If the award is approved by the Government you don’t have to pay taxes. If, however, the award is not approved, tax would have to be paid. Understand the implication of taxation and how much tax is payable so that you don’t face any penalty from the income tax department.

Frequently Asked Questions

Q- Who is required to deduct TDS from winnings?

TDS deduction should be done by the authority paying the winnings to the winner. It is the responsibility of the prize giving organisation to deduct TDS and then pay the winnings.

Q- Would the winnings be taxed at the tax slab rate?

No, winnings are taxed at a flat rate of 31.2%. They are not taxed at the tax slab rate of the individual.

Q- When will awards be tax-free?

Awards would be tax-free only if they are approved by the Government.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.