Circular No. 616-Income tax dated 22-11-1991

 Instructions for deduction from winnings from lottery, crossword puzzles, horse races or from commission, etc., paid on sale of lottery tickets – Rates of tax applicable during the financial year 1991-92

1. Reference is invited to the Board’s Circular No. 569, dated 27-7-1990 on the above subject wherein the rates at which the deduction of tax under sections 194B and 194BB was to be made during the financial year 1990-91 from winnings from lotteries, or crossword puzzles or horse races were communicated.
2. The Finance (No. 2) Act, 1991 does not make any change in the rates of tax applicable during the financial year 1991-92 in the matter of deduction of tax at source under sections 194B and 194BB of the Income-tax Act, 1961. However, a new section 194G has been inserted in the Income-tax Act, providing for deduction of tax at source from commission, etc., on sale of lottery tickets. The salient provisions regarding tax deduction from winnings from lotteries, horse races, etc., and the new sections are explained in the succeeding paragraphs.
3. According to section 194B of the Income-tax Act, 1961, the person responsible for paying to any person any income by way of winnings from lotteries or crossword puzzles, in an amount ex­ceeding five thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force. The Finance (No. 2) Act, 1991 has not made any change in the rates of tax, already in force,viz., 40% (plus surcharge), which will continue to be in force during the financial year 1991-92 also.
4. Section 194BB relating to deduction of tax at source from winnings from horse races, which is similar to section 194B, has however, been slightly amended with effect from 1-10-1991 and the exemption limit of rupees five thousand has been reduced to rupees two thousand five hundred. In other words, income-tax at the existing rates of 40% (plussurcharge) will be deducted from all winnings from horse races in excess of rupees two thousand five hundred.
5. The amount of income-tax deducted under sections 194B and 194BB shall be increased by a surcharge at the rate of 12% of such income-tax in the case of a resident person (other than a company). However, when the payee is a domestic company, the rate of surcharge will be 15%.
6. The Finance (No. 2) Act, 1991 has also introduced, with effect from 1-10-1991 a new provision in the form of section 194G in the Income-tax Act, which lays down that any person who is responsi­ble for paying, on or after the 1st day of October, 1991, to any person who is or has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remu­neration or prize (by whatever name called) on such tickets, in an amount exceeding one thousand rupees, shall, at the time of credit of such income to the account of the payee, or, at the time of payment of such income in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent. The tax deducted will be further increased by a surcharge at the rate of 12% of the sum deducted. In case, however, the payee is a domestic company, the rate of surcharge will be 15%.
7. It is further clarified in this regard that where any such income,e.g., commission, remuneration, etc., is credited to any account, whether called “Suspense Account” or by any other name in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and tax will have to be deducted at source.
8. The responsibilities, obligations, etc., under the Income-tax Act of the persons deducting tax at source are as follows :

(a)   According to the provisions of section 200, any person deducting any sum in accordance with the provisions of sections 194B, 194BB and 194G, etc., shall pay, within the prescribed time, the sum so deducted to the credit of the Central Govern­ment. Reference in this regard is invited to rule 30 of the Income-tax Rules, 1962 which prescribed the time for payment of tax into the Government’s account. Normally, the tax is required to be deposited within a week from the date of deduction of tax. Where, however, deduction is made by or on behalf of the Govern­ment, the sum has to be credited to the Central Government on the day of the deduction itself. If a person fails to deduct tax at source, or, after deducting, fails to pay the tax to the credit of the Central Government, he shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax from the date such tax was deductible to the date on which such tax is actually paid into the Government account. Reference in this regard is also invited to section 271C according to which a person who fails to deduct the whole or any part of tax as re­quired under the provisions of Chapter XVII of the Act shall pay, by way of penalty, a sum equal to the amount of tax not deducted by him. Further, section 276B lays down that if a person fails to pay to the credit of the Central Government, the tax deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and seven years and with fine.

(b)   According to the provisions of section 203, every person responsible for deducting tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, the amount deducted and certain other prescribed particulars. The certificate has to be furnished within the prescribed period (as given in rule 31 of the I.T. Rules, generally, within one month and fourteen days of the date of payment/deduction) to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be. The certificate for tax deduction under section 194G has to be issued in Form No. 16A (copy en­closed) on tax-deductor’s own stationery. In case of deduction  under sections 194B and 194BB, however, the certificate is re­quired to be furnished in Form No. 16B printed by the Central Government (which is to be obtained from the concerned Commis­sioner of Income-tax by making a nominal payment).

If a person fails to furnish a certificate of tax deduction, he shall be liable to pay by way of penalty, under section 272A a sum which shall not be less than Rs. 100, but which may extend to Rs. 200 for every day during which the failure continues.

(c)   According to the provisions of section 203A, it is obligatory for all persons responsible for deducting tax at source to obtain a tax deduction account number (TAN) and quote the same in the challans, TDS certificates, returns, etc. De­tailed instructions in this regard are available in this Depart­ment’s Circular No. 497 dated 9-10-1987. If a person fails to comply with the provisions of section 203A, he shall pay by way of penalty under section 272BB, a sum which may extend to Rs. 5,000.

(d)   According to the provisions of section 206, read with rules 36A and 37 of the Income-tax Rules, the prescribed persons in the case of every office of  Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting tax under the provisions of Chapter XVII of the Income-tax Act (which includes sections 194B, 194BB and 194G) shall, within the prescribed time after the end of each financial year, prepare and deliver or cause to be delivered to the designated/concerned Assessing Officer, a return of deduction of tax under sections 194B, 194BB and 194G. The returns for tax deduction under sec­tions 194B and 194BB have to be filed by 31st May, following the financial year in which tax deduction is made. These returns have to be filed in the prescribed forms (Nos. 26B and 26BB, respec­tively). For deductions under section 194G, the return form and the time limit for filing the return are being prescribed. If a person fails to furnish in due time the annual return, he shall be liable to pay by way of penalty, a sum which will not be less than Rs. 100 per day and not more than Rs. 200 per day for each day during which the default continues so, however, that their amount shall not exceed the amount of tax which was deductible at source.

9. These instructions have been issued with a view to helping the persons responsible for making deduction of tax at source under sections 194B, 194BB and 194G. However, if there is any doubt, a reference may be made to the provisions of the Income-tax Act, 1961. In case any assistance is required, the  Assessing Officer concerned or the Local Public Relations Officer of the Income-tax Department may be approached.

Circular : No. 616, dated 22-11-1991.

FORM NO. 16A

[See rule 31(1)(b)]

Certificate of deduction of tax at source under section 203
of the Income-tax Act, 1961

[For interest on securities; dividends; interest on time deposits referred to in clauses (vii) and (viia) of sub-section (3) of section 194A; insurance commission; payments in respect of depos­its under National Savings Scheme; payments on account of repur­chase of units by the Mutual Fund or Unit Trust of India; commis­sion, remuneration or prize on sale of lottery tickets; commission or brokerage; income from units referred to in section 196B].

DETAILS OF PAYMENT, TAX DEDUCTION AND DEPOSIT OF TAX INTO CENTRAL GOVERNMENT ACCOUNT

Certified that a sum of Rs. (in words)……………………..has been deducted at source and paid to the credit of the Central Government as per details given above.