Introduction:

When you hit the jackpot or win bets, you might wonder, "Are taxes applicable on these earnings?" Unlike regular income, winnings may seem like they should be tax-free. However, all forms of earnings, including casual income, attract taxes. The Indian Government imposes a consistent tax rate on casual income to discourage gambling or betting winnings. This taxation is governed by Section 115BB of the Income Tax Act.

This article clarifies the meaning of casual income, gives examples, outlines tax rates, and explains the relevant sections.

What is casual income in income tax?

Casual income in tax terms refers to unexpected and non-recurring earnings that do not provide a recurring revenue stream. Such income is one-off, without contractual obligations, and lacks predictability. Examples include surprise money inflows that are not planned or regular.

Key provisions related to casual income:

1. Expenses related to casual income can't be deducted. Costs involved in earning casual income, like buying a lottery ticket, aren't subtracted from your winnings.
2. According to Section 194B, winnings from lotteries, card games, or crosswords attract TDS if they exceed Rs.10,000. With a combined surcharge, the TDS rate is 31.2%, which the prize distributor must deduct.
3. Losses from casual income can't be offset against other income.

Example of casual income

Casual income examples involve lottery wins, quiz shows, poker, sports bets, and games of chance like crosswords. Lotteries offer people a chance to win substantial amounts with luck.

Casual income tax rate

The Income Tax Act treats casual income as "Income from Other Sources," taxable under Section 115BB. Key tax implications include:

1. A flat 30% tax rate on casual income, which rises to 31.2% with cess.
2. If the prize is in kind, like a car, tax must be paid before the award is given.
3. Prize money over Rs.10,000 received as cash or cheque incurs a 31.2% TDS deduction, as per Section 194B.
4. Prizes in both kind and cash have taxes calculated on combined value.
5. Horse race winnings over Rs.10,000 also attract TDS.

Casual income section

Section 115BB of the Income Tax Act 1961 governs casual income tax. This section minimizes tax evasion and ensures transparency in income sources.

Casual incomes under this category:

• Crossword puzzles
• Lotteries
• Horse racing
• Betting or gambling
• Card games

Casual income is taxed at a 30% flat rate, with an added cess making it 31.20%. No expenses are deductible, and the exemption limit doesn't apply. TDS must be deducted if income exceeds Rs.10,000, under either Section 194B or 194BB:

• Section 194B: Winnings from crosswords or lotteries
• Section 194BB: Winnings from horse races

Which income is not treated as casual income?

Specific incomes aren't categorized under casual income, including:

1. Business, occupation, or professional receipts
2. Capital gains under Section 45
3. Employee remuneration additions like perks or bonuses

How do you declare casual income?

Declare casual income when filing ITR-1 online under "Income from Other Sources." Report the prize amount and attach the TDS certificate as confirmation of taxes paid on winnings.

How do you calculate tax for casual income?

Here's how to compute your taxable casual income:

1. Rohit wins Rs.1,00,000 gambling. Raj, responsible for disbursal, must deduct 31.2% TDS under Section 115BB.
2. In a crossword contest, Rohit wins Rs.20,000 cash and a Rs.80,000 car. Raj must deduct 31.2% tax. For payments, Raj should deduct Rs.20,000 from earnings and collect Rs.11,200 tax from Rohit.

Final word

Section 115BB dictates tax rates for casual income with a flat 30% levy. No deductions or exemptions apply. Declare casual income under "Income from Other Sources" in ITR-1. Understanding the tax obligations helps avoid ITR filing errors.