Section 194B of the Income Tax Act, 1961
For a detailed explanation, see Section 194B of the Income Tax Act, 1961, which addresses Tax Deduction at Source (TDS) on winnings from card games, crossword puzzles, lotteries, and other games of any kind, including online games.
The legal provision in question states that "Any person responsible for paying any person any income by way of winnings from any lottery, crossword puzzle, card game, and other game of any sort in an amount exceeding ₹10,000 shall, at the time of payment, deduct income-tax thereon at the prescribed rate."
Key Elements of Section 194B
| Particular | Details |
|---|---|
| Applicability | On winnings from lotteries, crossword puzzles, card games, and other games (including online games) |
| Threshold Limit | ₹10,000 (per winning) |
| TDS Rate | 30% (plus applicable surcharge and cess, if any) |
| Time of Dedication | At the time of payment |
| Applicable To | Individuals, Companies, Firms -- all types of assesses |
| Effective TDS Section | Section 194B (for general games) & Section 194BA (specific to online games from 1 April 2023) |
Explanation with Examples
Example 1: Lottery Winning
If you win ₹1,00,000 from a state lottery:
- TDS @ 30% = ₹30,000
- You will receive only ₹70,000
- The lottery organizer will deposit ₹30,000 as TDS with the government.
Example 2: Online Game (Post 1 April 2023)
If you earn ₹15,000 from an online gaming app:
- Section 194BA applies instead of 194B.
- TDS is also 30% (irrespective of the threshold), but it is deducted on net winnings.
Section 194B vs 194BA (Online Gaming)
| Feature | Section 194B | Section 194BA |
|---|---|---|
| Applicable From | Since inception | 1st April 2023 |
| Covers | Lottery, puzzles, card/games (offline) | Online gaming (real money) |
| TDS Threshold | ₹10,000 | No threshold -- TDS on any winnings |
| TDS Timing | At the time of payment | At the time of withdrawal or year-end |
| TDS Rate | 30% | 30% |
Important Information:
Under no circumstances may such winnings be used for expenses or deductions. All winnings are subject to a flat 30% tax rate with no basic exemption limit. In the event that the prize is in-kind (a bike, car, etc.), then: The winner must pay TDS before they can get their prize. Or the equivalent TDS amount must be subtracted in cash by the prize distributor.
Compliance with TDS
The TDS return must be submitted by the payer using Form 26Q. The winner should receive a TDS certificate (Form 16A). PAN is required; if not, Section 206AA will apply and TDS at a rate of 20% or more may be withheld.
Conclusion
Tax evasion on game-based income is discouraged by Section 194B. It guarantees efficient and equitable taxation at the source of high-value windfall gains that result from luck rather than hard work or business.
