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

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

Introduction:

When you win the lottery or any bets, a persistent question arises: "Do I have to pay taxes on this income?" As it is not regular income, you may think that you can avoid paying taxes on it. However, that is not the case, and it is important to understand the concept of casual income.

The Indian Government levies a flat tax rate on casual income with the intention of discouraging winnings from gambling or betting. Section 115BB of the Income Tax Act deals with the tax rate applied to casual incomes.

This article aims to provide a clear picture of the meaning of casual income, examples, tax rates, and applicable sections.

What is casual income in income tax?

In income tax terms, casual income refers to an extra financial boost that cannot be relied upon as a steady stream of revenue. It represents a one-time occurrence and does not fall under any contractual agreements or future expectations. Casual income is unpredictable, defying any established patterns or distributions. Furthermore, it encompasses any unforeseen and unscheduled inflows of money.

While understanding the meaning of casual income, it is important to consider some key provisions:

1. Any expense related to casual income is not deductible. If you incur any costs to earn casual money, they will not be subtracted from your earnings. For instance, the cost of buying a lottery ticket will not be deducted from the income received from it.

2. As per Section 194B, winnings from things 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%, including cess and surcharge. The organization distributing the prize money is responsible for deducting TDS.

3. You are not permitted to set off any losses. If you have any casual losses instead of income, the amount will not be subtracted from any of your other income.

Example of casual income

Examples of casual income include winnings from lotteries, quiz shows, poker games, successful sports betting, crossword or puzzle-solving, and various other games of chance. Lotteries offer an opportunity for individuals to strike it rich by claiming prizes through draws or sheer luck.

Casual income tax rate

Under the Income Tax Act, casual income is charged under the head of "Income from Other Sources" and is taxable as per Section 115BB.

The tax implications for casual income are as follows:

1. A flat tax rate of 30% is applied to casual income. After adding cess, the rate amounts to 31.2%.

2. If you receive any prize in kind, such as a car, the distributor of the prize must ensure that the tax has been paid before awarding it.

3. If you win prize money in cash, demand draft, or cheque of more than Rs.10,000, you will receive the money after a deduction of 31.2% TDS under Section 194B.

4. If you receive any prize in kind and cash, your total tax will be calculated based on the cash received and the market value of the prize in kind.

5. TDS will apply to your winnings from horse racing if they exceed Rs.10,000.

Casual income section

Casual income is taxed under Section 115BB of the Income Tax Act 1961. The main objective of this section is to prevent tax evasion and ensure no discrepancies regarding income sources.

The casual incomes that fall under this category include:

1. Crossword puzzles

2. Lotteries

3. Horse races

4. Betting or gambling games

5. Card games

You will be taxed at a flat 30% rate on your casual income under Section 115BB. Additional surcharge and cess are applied to this tax rate, amounting to 31.20% in total. If you incur any expenses, they will not be deducted from your total casual income. The benefits of any basic exemption limit are also unavailable for such income.

Moreover, under this section, it is important to deduct TDS from your taxable income. If your taxable income exceeds Rs.10,000, the person making the payment has to deduct TDS under either Section 194B or 194BB.

Section 194B: Winnings from crossword puzzle or lottery

Section 194BB: Winnings from horse races

Which income is not treated as casual income?

While there are various incomes classified as casual income, there are some that do not fall under this category. Incomes not treated as casual income include:

1. Receipts from business, occupation, or a profession

2. Capital gains charged under the provisions of Section 45

3. Receipts added to an employee's remuneration, such as prerequisites or bonuses

How do you declare casual income?

You need to declare your casual income while filing ITR-1 online. This income is taxable under the heading "Income from Other Sources." You must declare the amount of prize money you received and submit the TDS certificate as proof of payment of all taxes on your winnings.

How do you calculate tax for casual income?

To understand how to calculate your taxable casual income, consider the following examples:

1. Rohit won Rs.1,00,000 from gambling, and Raj is responsible for handing over the winning amount to Rohit. Hence, Raj has to deduct 31.2% TDS from the total amount under Section 115BB.

2. Suppose, in a crossword competition, Rohit won Rs.20,000 in cash and a car worth Rs.80,000, and Raj will pay the cash and give the car. While making the payments, Raj needs to deduct tax at a rate of 31.2%. In this scenario, it is not sufficient to deduct tax from the winning amount. So, during payments, Raj must deduct Rs.20,000 from the winning amount and collect Rs.11,200 as tax from Rohit.

Final word

Section 115BB of the Income Tax Act deals with tax rates charged on casual income, applying a flat rate of 30%. Deductions or exemptions are not allowed for these incomes. You can declare your casual income while filing ITR-1 under the head of "Income from Other Sources." It is important to understand how your casual income is taxed and calculated to avoid any discrepancies during ITR filing.

Introduction:

When you win the lottery or any bets, a persistent question arises: "Do I have to pay taxes on this income?" As it is not regular income, you may think that you can avoid paying taxes on it. However, that is not the case, and it is important to understand the concept of casual income.

The Indian Government levies a flat tax rate on casual income with the intention of discouraging winnings from gambling or betting. Section 115BB of the Income Tax Act deals with the tax rate applied to casual incomes.

This article aims to provide a clear picture of the meaning of casual income, examples, tax rates, and applicable sections.

What is casual income in income tax?

In income tax terms, casual income refers to an extra financial boost that cannot be relied upon as a steady stream of revenue. It represents a one-time occurrence and does not fall under any contractual agreements or future expectations. Casual income is unpredictable, defying any established patterns or distributions. Furthermore, it encompasses any unforeseen and unscheduled inflows of money.

While understanding the meaning of casual income, it is important to consider some key provisions:

1. Any expense related to casual income is not deductible. If you incur any costs to earn casual money, they will not be subtracted from your earnings. For instance, the cost of buying a lottery ticket will not be deducted from the income received from it.

2. As per Section 194B, winnings from things 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%, including cess and surcharge. The organization distributing the prize money is responsible for deducting TDS.

3. You are not permitted to set off any losses. If you have any casual losses instead of income, the amount will not be subtracted from any of your other income.

Example of casual income

Examples of casual income include winnings from lotteries, quiz shows, poker games, successful sports betting, crossword or puzzle-solving, and various other games of chance. Lotteries offer an opportunity for individuals to strike it rich by claiming prizes through draws or sheer luck.

Casual income tax rate

Under the Income Tax Act, casual income is charged under the head of "Income from Other Sources" and is taxable as per Section 115BB.

The tax implications for casual income are as follows:

1. A flat tax rate of 30% is applied to casual income. After adding cess, the rate amounts to 31.2%.

2. If you receive any prize in kind, such as a car, the distributor of the prize must ensure that the tax has been paid before awarding it.

3. If you win prize money in cash, demand draft, or cheque of more than Rs.10,000, you will receive the money after a deduction of 31.2% TDS under Section 194B.

4. If you receive any prize in kind and cash, your total tax will be calculated based on the cash received and the market value of the prize in kind.

5. TDS will apply to your winnings from horse racing if they exceed Rs.10,000.

Casual income section

Casual income is taxed under Section 115BB of the Income Tax Act 1961. The main objective of this section is to prevent tax evasion and ensure no discrepancies regarding income sources.

The casual incomes that fall under this category include:

1. Crossword puzzles

2. Lotteries

3. Horse races

4. Betting or gambling games

5. Card games

You will be taxed at a flat 30% rate on your casual income under Section 115BB. Additional surcharge and cess are applied to this tax rate, amounting to 31.20% in total. If you incur any expenses, they will not be deducted from your total casual income. The benefits of any basic exemption limit are also unavailable for such income.

Moreover, under this section, it is important to deduct TDS from your taxable income. If your taxable income exceeds Rs.10,000, the person making the payment has to deduct TDS under either Section 194B or 194BB.

Section 194B: Winnings from crossword puzzle or lottery

Section 194BB: Winnings from horse races

Which income is not treated as casual income?

While there are various incomes classified as casual income, there are some that do not fall under this category. Incomes not treated as casual income include:

1. Receipts from business, occupation, or a profession

2. Capital gains charged under the provisions of Section 45

3. Receipts added to an employee's remuneration, such as prerequisites or bonuses

How do you declare casual income?

You need to declare your casual income while filing ITR-1 online. This income is taxable under the heading "Income from Other Sources." You must declare the amount of prize money you received and submit the TDS certificate as proof of payment of all taxes on your winnings.

How do you calculate tax for casual income?

To understand how to calculate your taxable casual income, consider the following examples:

1. Rohit won Rs.1,00,000 from gambling, and Raj is responsible for handing over the winning amount to Rohit. Hence, Raj has to deduct 31.2% TDS from the total amount under Section 115BB.

2. Suppose, in a crossword competition, Rohit won Rs.20,000 in cash and a car worth Rs.80,000, and Raj will pay the cash and give the car. While making the payments, Raj needs to deduct tax at a rate of 31.2%. In this scenario, it is not sufficient to deduct tax from the winning amount. So, during payments, Raj must deduct Rs.20,000 from the winning amount and collect Rs.11,200 as tax from Rohit.

Final word

Section 115BB of the Income Tax Act deals with tax rates charged on casual income, applying a flat rate of 30%. Deductions or exemptions are not allowed for these incomes. You can declare your casual income while filing ITR-1 under the head of "Income from Other Sources." It is important to understand how your casual income is taxed and calculated to avoid any discrepancies during ITR filing.

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