Taxability of Winnings from Lotteries, Crossword Puzzles, Horse Races & Card Games [Section 56(2)(ib)]

1. Applicability

Section 56(2)(ib) covers casual and non-recurring income from:

• Lotteries(including online lotteries)
• Crossword puzzles
• Horse races
• Card games(e.g., poker, rummy if played for stakes)
• Gambling(casino, betting, etc.)
• Game shows(TV/online contests with cash prizes)

2. Tax Treatment

• Flat Tax Rate: 30% + 4% cess(effective 2%) under Section 115BB.
• No Deductions: Expenses incurred (e.g., ticket costs, participation fees) cannotbe deducted.
• No Slab Benefit: Even if the taxpayer falls in a lower tax bracket (e.g., 5%), winnings are taxed at 30%.

3. TDS (Tax Deducted at Source)

• Mandatory TDS @ 30%if winnings exceed:
  • ₹10,000(for lotteries, crossword puzzles)
  • ₹10,000(for horse races)
  • ₹10,000(for card games, gambling, etc.)
• No TDS if below threshold, but still taxable.

4. Reporting in ITR

• Schedule OS: Declare under “Income from Other Sources.”
• Gross Winnings: Entire prize money is taxable (no netting of expenses).
• TDS Credit: Claim if TDS was deducted (Form 26AS).

5. Key Exceptions & Judicial Rulings

• Skill-Based Games (Rummy, Fantasy Sports):
  • Exemptif proven as skill-based (e.g., Supreme Court in  K.R. Lakshmanan v. Tamil Nadu).
  • Taxableif purely chance-based (e.g., lottery, roulette).
• Small Winnings Below ₹10,000: No TDS, but must still be reported.

6. Example

If Mr. X wins ₹5 lakh in a lottery:

• Tax @ 31.2%: ₹1,56,000
• TDS (if deducted): ₹1,50,000 (30%)
• Balance Tax Payable: ₹6,000 + cess

7. Penalties for Non-Disclosure

• Scrutiny Risk: High, as lottery agencies report winnings to IT Dept.
• Interest & Penalty: Under Sections 234A/B/C for late filing.

Note: Losses from gambling cannot be adjusted against other income (Section 58(4)).