Circular No. 661-Income tax dated 16-9-1993

SECTION 194B – WINNINGS FROM LOTTERY OR CROSSWORD PUZZLE

INSTRUCTIONS FOR DEDUCTION OF TAX AT SOURCE FROM WINNING FROM LOTTERIES, HORSE RACES, ETC.

FINANCIAL YEAR 1993-94

Instructions for deduction of tax at source from winnings from lotteries and crossword puzzles, horse races or from commission, etc. – Rates of tax applicable during financial year 1993-94

1. Reference is invited to the Board’s Circular No. 631, dated 20-8-1992 on the above-mentioned subject wherein the rates at which the deduction of tax under sections 194B, 194BB and 194G of the Income-tax Act, 1961 was to be made during the financial year 1992-93 from winnings from lotteries, crossword puzzles, horse races and from commission, etc., paid on sale of lottery tickets, were communicated.

2. There is no change in the rates of tax which will be applica­ble during the financial year 1993-94 in the matter of deduction of tax at source under sections 194B, 194BB and 194G of the Income-tax Act. The salient provisions relating to deduction of tax at source under the aforesaid sections are as follows :—

     (i)   As per section 194B, the person responsible for paying to any person any income by way of winnings from lotteries or crossword puzzles, in an amount exceeding Rs. 5,000 (Rupees Five thousand only) shall, at the time of payment thereof, deduct income-tax thereon at the rate in force. For the financial year 1993-94, the rate at which tax is to be deducted is 40 per cent (plus surcharge, referred to in para 3).

    (ii)   As per section 194BB, any person,being a book-maker or a person to whom a licence has been granted by the Government under any law, for the time being in force, for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race in an amount ex­ceeding Rs. 2,500 (Rupees Two thousand and five hundred only) shall, at the time of payment thereof, deduct income-tax thereon at the rate in force, viz., 40 per cent (plus surcharge, referred to in para 3).

   (iii)   As per section 194G(1), any person who is respon­sible for paying on, or, after the 1st day of October, 1992, 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 Rs. 1,000 (Rupees One thousand only), 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 a draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 10 per cent (plus surcharge, referred to in para 3). It is 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 the tax will have to be deducted at source. It may be stated that persons engaged in the lottery business, whose total income bears no tax liability or bears a tax liability justifying deduction of tax at rate lower than 10 per cent, can obtain from the Assessing Officer a certificate for deduction of tax at a lower rate, or, for no deduction of tax at source, as the case may be. Such a person can make an application in this behalf to the Assessing Officer in Form No. 13D (Annexure II).

     (i)   As per section 194B, the person responsible for paying to any person any income by way of winnings from lotteries or crossword puzzles, in an amount exceeding Rs. 5,000 (Rupees Five thousand only) shall, at the time of payment thereof, deduct income-tax thereon at the rate in force. For the financial year 1993-94, the rate at which tax is to be deducted is 40 per cent (plus surcharge, referred to in para 3).

(ii)   As per section 194BB, any person,being a book-maker or a person to whom a licence has been granted by the Government under any law, for the time being in force, for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race in an amount ex­ceeding Rs. 2,500 (Rupees Two thousand and five hundred only) shall, at the time of payment thereof, deduct income-tax thereon at the rate in force, viz., 40 per cent (plus surcharge, referred to in para 3).

(iii)   As per section 194G(1), any person who is respon­sible for paying on, or, after the 1st day of October, 1992, 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 Rs. 1,000 (Rupees One thousand only), 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 a draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 10 per cent (plus surcharge, referred to in para 3). It is 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 the tax will have to be deducted at source. It may be stated that persons engaged in the lottery business, whose total income bears no tax liability or bears a tax liability justifying deduction of tax at rate lower than 10 per cent, can obtain from the Assessing Officer a certificate for deduction of tax at a lower rate, or, for no deduction of tax at source, as the case may be. Such a person can make an application in this behalf to the Assessing Officer in Form No. 13D (Annexure II).

3. The amount of income-tax to be deducted at the aforesaid rates shall be further increased by a surcharge, for the purposes of the Union, at the following rates :—

(i)   In a case where the payee is a non-corporate resident person                                                                               12 per cent

(ii)   In a case where the payee is a domestic company                                                                                                   15 per cent.

4. The responsibilities, obligations, etc., under the Income-tax Act, of the person 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 prescribes the time for payment of tax into the Government’s account. Normally, the tax is required to be depos­ited within one 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 pay the tax to the credit of the Central Government, he shall be liable, in accord­ance with the provisions of section 201(1A), to pay simple inter­est at fifteen per cent per annum on the amount of such tax from the date on which 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 the tax as required under these provisions, 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 not be less than 3 months but which may extend to 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 the 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 Income-tax Rules; generally within one month and fourteen days of the date of payment/credit) to the person to whose account credit is given or to whom payment is made, or, to whom 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 at Annexure I) on tax-deductor’s own stationery. In case of deduction under sections 194B and 194BB, this certifi­cate was required to be furnished till the 30th June, 1993 in Form No. 16B which was printed by the Central Government and was to be obtained from concerned Commissioner of Income-tax on making a nominal payment. However, with effect from 1st of July, 1993, Form No. 16B has been omitted [vide the Income-tax (Elev­enth Amendment) Rules, 1993 published under Notification No. SO 405(E), dated 21-6-1993], and the certification for tax deducted at source  under sections 194B and 194BB shall also be issued in Form No. 16A (Annexure I) with effect from 1-7-1993. If a person fails to furnish the certificate of tax deduction he shall be liable to pay, by way of penalty,  under section 272A(2), a sum which shall not be less than Rs. 100 but which may extend to Rs. 200 for each 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 contained 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 by way of penalty  under section 272BB, pay 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 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 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 those provisions. These annual returns of tax deduction  under sections 194B and 194BB have to be filed in Form Nos. 26B and 26BB, respectively, by the 31st May, following the financial year in which tax is deducted. For deduction under section 194G, the annual return has to be filed in Form No. 26H by the 30th June, following the financial year in which the deduction is made. If a person fails to furnish in due time the annual return, he shall be liable to pay by way of penalty, under section 272A(2), 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 this amount shall not exceed the amount of tax which was deductible at source.

5. 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, reference should be made to the relevant provisions of the In­come-tax Act, 1961 and the Income-tax Rules, 1962. In case any assistance is required, the Assessing Officer concerned, or the local Public Relations Officer of the Income-tax Department, may be contacted.

Circular : No. 661, dated 16-9-1993.