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Lotteries, Crossword, Races – Tax Treatment

Winning a jackpot sounds great, but the 30% Flat Tax bites hard! Let's understand the rules for "Casual Income" – money won by chance.

What is Casual Income?

Income which is accidental or non-recurring.

  • Inclusions: Lotteries, Crossword Puzzles, Races (Horse rights), Card Games, Gambling, Betting.
  • New Addition: Winnings from Online Games (Net Winnings).

Tax Rules (Section 115BB)

  1. Flat Rate: 30% (+ 4% Cess = 31.2%).
  2. No Basic Exemption: Even if your total income is below ₹2.5 Lakh, this income is taxed at 30% flat.
  3. No Expenditure: You cannot deduct the cost of lottery tickets or entry fees.
    • Exception: Business of owning/maintaining race horses (Section 58(4) allows expenses).
  4. No Set-off: Loss from lottery cannot be set off against lottery profit or any other income.

TDS Provisions (Deduction at Source)

Section 194B: Lottery/Games

  • Limit: If prize > ₹10,000.
  • Rate: 30%.
  • Payer: Must deduct before paying you.
  • Prize in Kind (e.g., Car): Winner must pay tax to organizer before releasing the prize, or organizer pays it.

Section 194BB: Horse Races

  • Limit: If winnings > ₹10,000.
  • Rate: 30%.

Section 194BA: Online Games (Net Winnings)

  • Limit: No threshold for rate (Tax on Net Winnings).
  • Rate: 30% on net amount withdrawn/remaining at year-end.

Grossing Up Concept

If you receive the Net Amount (after TDS), you must "Gross Up" to find taxable income.

Gross Winnings = Net Received × 100 / (100 - TDS Rate) Gross Winnings = Net Received × 100 / 70

Example:

  • Received Cheque: ₹7,00,000.
  • This is after 30% TDS.
  • Taxable Income: 7L × 100/70 = ₹10,00,000.

Activity: Owning & Maintaining Race Horses

Unlike betting on horses (which is casual income), owning and maintaining them is an activity.

  • Losses: Loss from this activity CAN be carried forward (4 years).
  • Set-off: Can only be set off against profit from same activity (Race Horses).

Practical Problem

Mr. Lucky's Incomes (FY 2024-25):

  1. Winnings from Lottery (Net): ₹2,80,000.
  2. Loss from Card Games: ₹50,000.
  3. Interest Income: ₹1,00,000.
  4. Investment in PPF: ₹50,000.

Computation:

  1. Lottery Income: Gross up (2.8L / 0.7) = ₹4,00,000.
  2. Card Game Loss: Ignored (No set-off).
  3. Interest: ₹1,00,000.
  4. Gross Total Income: ₹5,00,000.
  5. Deductions (80C): PPF ₹50,000?
    • Rule: Deductions NOT allowed against Lottery Income.
    • Allowable only against Interest.
    • Max Deduction = ₹1,00,000 (Interest).
    • So, PPF ₹50k is allowed.
  6. Taxable Income:
    • Lottery: ₹4,00,000 (Tax @ 30% = 1,20,000).
    • Other Balance: ₹50,000 (Below exemption limit, Tax = 0).
    • Total Tax: ₹1,20,000 + Cess.

Summary

  • Tax Rate: 30% Flat on all casual winnings.
  • Expenses: Not allowed (except Race Horse maintenance).
  • Losses: Cannot be set off or carried forward.
  • Deductions (80C): Not allowed against winnings.
  • TDS: 30% if > ₹10,000.

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