How are Lottery winnings taxed in India

Facts about Lottery tax winnings in India

• Lottery winnings are taxable in India under the Finance Act of 1986 and Income Tax Act at a flat 30% rate. There is an extra percentage surcharge for winnings over a set amount and a further 3% 'Cess' charged for improving education and health care.
• At Lottoland you are not charged any taxes of payouts; winners are legally responsible for claiming and paying all of the taxes required by the Indian government on any lottery winnings from Lottoland.

For those states where lottery is legal in India it is as an important source of revenue for the government. Unlike some countries in Europe and others around the world, lottery winnings are taxable in India, including prizes won on online lottery websites such as Lottoland.

Calculating tax on Lottery winnings in India

In India money won through lotteries is seen as a form of special taxable income under the Finance Act of 1986, section 115BB and in Chapter XII of the Income Tax Act. Other forms of special income include money won from betting on horse racing, gambling, crossword puzzles and game shows. Lottery winnings are charged at a flat 30% rate without tax brackets or exemptions.

If the income exceeds a specific amount a further surcharge is added to the flat taxable rate as you can see in below table.

On top of this amount a further 3% is charged for helping with education and health care good causes – the ‘Education Cess' (EC) (add 2%); and ‘Secondary & Higher Education Cess' (SHEC) (add 1%).

Indian Internal Revenue Service Laws

In India, according to the Finance Act of 1986, section 115BB; In Chapter XII of the Income-tax Act, the law supports the tax from lottery winnings. The constitution states that there are taxes to be received from lottery winnings, crossword puzzles, and races including horse races, card games and other games of any sort or gambling or betting of any form or nature whosoever.

Education Cess (EC) & Secondary & Higher Education Cess (SHEC) is a compulsory levy on tax. There is a need for the government to improve educational infrastructures. This is how money is raised to improve the educational sector. This should definitely put a smile on your face; now you know that your money is being used to help the young. This levy does not take much from your lottery wins. It takes a total of 3%. Education Cess is always budgeted to 2% of the surcharge and the income tax amount. And then Secondary & Higher Education Cess (SHEC) receives 1% of the surcharge and the income tax amount.

How Do You Calculate Your Lottery Winning Tax?

This is the breakdown on the tax of your winning from lottery:

Income tax = 30% of the winning from lottery

Surcharge (if your money is more than 1 crore, 100 lakhs or 1 million) = 15% of the income tax amount

Education Cess (EC) & Secondary & Higher Education Cess (SHEC) = 3% of the surcharge and the income tax amount

So, if you win 50 lakhs or 5 crore from lottery:

Income tax = 1.5 crore

Surcharge = 0.15 crore to 0.225 crore

Education Cess (EC) & Secondary & Higher Education Cess (SHEC) = 0.495 crore to 0.05175

This would mean that your total tax is 2.145 crore to 1.78 crore.

No Deduction is Allowed

The law backing the payment of this tax under the Finance Act of 1986, section 115BB; In Chapter XII of the Income Tax Act is quite rigid. There are no deductions allowed on the income tax amount you are required to pay. There is a section 80C of the Income Tax Act 1961 that allows individuals and HUFs to claim a tax deduction of up to Rs. 1,50,000 from their gross total income for certain investments and payments.

Unfortunately, the tax reduction in section 80C and 80 D does not work for income from lottery winnings, crossword puzzles, and races including horse races, card games, and other games of any sort or gambling or betting of any form or nature whosoever. The only deduction allowed when your winning from the lottery is the surcharge if your winning from the lottery is less than Rs. 10,000. However, there will be no tax deducted where the amount of winning from each lottery, crossword puzzle, card game, etc. does not exceed Rs. 10,000.

The case where you will not be taxed is if you were to donate the entire amount to charity.

Tax Deducted at Source (TDS)

Tax Deducted at Source popularly known as TDS is a law from the Income Tax Department of India. The law simply states that;

“The concept of TDS was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get a credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.”

The TSD is applicable to the income from lottery winnings, crossword puzzles, and races including horse races, card games and other games of any sort or gambling or betting of any form or nature whosoever. This means that the person responsible for paying to the winners of any income of any amount exceeding Rs.10,000 shall deduct income tax thereon at the rates in force.

However, the rate of Tax Deducted at Source; TSD under section 194B for financial years 2018, 2019, and 2020 is 30% flat rate. This means that no surcharge or Education Cess (EC) & Secondary & Higher Education Cess (SHEC) shall be added.

Tax on Awards and Prizes

In a lottery, a person might not win money. It could be consolation prizes or even awards. For those types of prizes the government of India has declared they are tax free.

According to the law of Section 17A; any award or prize that has been approved by the Central government shall be tax free. These include awards like National Awards, Nobel Prize, Arjuna Award, Awards given by the Government to winners of Olympics, Asian Games, Commonwealth Games, Bharat Ratna Award.

As sweet as Section 17A sounds, lotteries are not exactly approved by the Central Government. Also, there is another law called Section 56(2) of the Income Tax Act which talks about the “Income from other Sources”.

Tax on winnings at Lottoland

Lottoland does not charge any taxes on money won betting on the lottery results. However all winners are legally required to pay all applicable taxes in their country of residence on the money they win. If you are a resident of India then this means that you are legally responsible to account for any winnings you have at Lottoland and pay the correct taxes upon this amount.