FINANCIAL YEAR 1988-89
1740. Instructions for deduction of tax at source from winnings from lottery or crossword puzzle or horse race – Rates of tax applicable during the financial year 1988-89
1. I am directed to invite a reference to this Department’s Circular No. 485, dated 27-5-1987 and Circular No. 507, dated 23-2-1988 on the above subject, wherein the rates at which deduction of tax under sections 194B and 194BB to be made during the financial year 1987-88 from winnings from lotteries or crossword puzzles or horse races and the rate of surcharge leviable thereon were communicated.
2. According to the provisions of section 115BB of the Income-tax Act, 1961 any income of a casual and non-recurring nature of the type of winnings from lotteries, crossword puzzles, races including horse race, etc., will be charged to income-tax at a flat rate of 40 per cent. According to the provisions of sections 194B and 194BB every person responsible for paying to any person, whether resident or non-resident, any income by way of winnings from lotteries or crossword puzzles or horse races in any amount exceeding Rs. 5,000 is required to deduct income-tax therefrom at the rates specified in this behalf in the Finance Act of the relevant year. In other words, no tax shall be leviable in respect of winnings from lotteries, crossword puzzles, horse races, etc., where the amount received from such winnings together with any sum received as casual and non-recurring receipt in the aggregate does not exceed Rs. 5,000 in a year. Where such winnings exceed Rs. 5,000 tax is to be deducted at source at the rate of 40 per cent on the gross winnings after treating Rs. 5,000 exempt under the provisions of section 10(3) of the Income-tax Act, 1961. The term ‘gross winnings’ appearing herein means the payment received by the prize winners after deduction of the amount to be paid to commission agents.
3. According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to quote the Tax-deduction Account Number (TAN) in the Challans, TDS Certificates, periodical 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 provision of section 203A, he shall, on an order passed by the ITO pay, by way of penalty a sum which may extend to Rs. 5,000.
4. In this connection attention is also invited to the provisions of section 206 of the Income-tax Act, 1961, which reads as under :
“206. The prescribed person 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 foregoing provisions of this Chapter shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered to the prescribed income-tax authority, such returns in such form and verified in such manner and setting forth such particulars as may be prescribed.”
5. According to the rates specified in Part II of the First Schedule to the Finance Act, 1988, income-tax at the rate of 40 per cent shall be deducted at source from income by way of winnings from lottery, crossword puzzle and horse race in the case of all categories of persons. The amount of income-tax thus deducted shall be increased :
(i) by a surcharge for the purpose of the Union at the rate of 5 per cent of such income-tax in the case of resident Indian; and
(ii) by a surcharge at the rate of 5 per cent of such income-tax in the case of domestic company.
6. According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of sections 194B and 194BB shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government. If he fails to deduct tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection attention is also invited to the provisions of section 276B of the Income-tax Act, as substituted by the Direct Tax Laws (Amendment) Act, 1987 according to which 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 7 years and with fine.
7. These instructions are not exhaustive and are issued only with a view to helping the persons responsible for making deduction of tax at source under these sections. Wherever there is difference of opinion, a reference should always be made to the provisions of the Income-tax Act, 1961, and the relevant Finance Act through which the changes in law are made. In case any assistance is required, the Income-tax Officer concerned or the local Public Relations Officer of the Income-tax Department may be approached for the same, who will, if necessary, obtain orders of the higher authority in the matter.
Circular : No. 515, dated 31-5-1988.