CA Umesh Sharma
Arjuna (Fictional Character): Krishna, recently Indian resident Mr. Kailash Satyarthi received Nobel Peace Prize with Malala Yusufzai. This consists of a medal and approximately 6 crores and 64 lakh rupees. Is an Indian resident required to pay Income tax on this Prize money? And also please explain how Income tax is levied on Awards, Prizes, Rewards, etc.
Krishna (Fictional Character): Arjuna, Alfred Nobel started the Nobel Awards in 1901. It is given by Norve Country and till date 128 Awards have been distributed. If the amount is received by an Indian resident, then the Tax laws of the country from which amount has been received and also the provisions of Indian Income Tax Act has to be taken into consideration while calculating tax liability. Earlier when Mother Teresa had received the Nobel Peace Prize, the Indian Government had notified the same in section 10(17A) of Income Tax Act and made it tax free. Similarly now the Government needs to notify the Nobel Prize to make it tax-free.
Arjuna: Krishna, what are the provisions in Income Tax Act 1961 related to other Awards?
Krishna: Arjuna, Awards may be divided in two sections i.e. some Awards are Tax-free in Exemption section 10(17A) and some Awards are taxable under section 56(2) under the head “Income from other sources”. For deciding taxability of the Awards one have to check from whom the Award was received and it was received for what purpose and whether it has been approved by the Central or State government or not.
Arjuna: Krishna, which Awards are tax-free?
Krishna: Arjuna, the Awards given in the public interest by the Central or State Government or any other body after approval from the government are tax-free. Similarly Prizes given by Central or State government in cash or kind to the winners of Olympics or Asian games or Common wealth games are tax-free. It means that only Government approved Prizes are tax-free. E.g. the Olympic Award received by Mary Kom is tax-free. Also the National Award for Films received by Vidya Balan in the year 2011 was also tax fee. Likewise only notified awards are tax free. Award of your name i.e., “Arjun” wards to sportsmen by Central Government if notified then it also tax free.
Arjuna: Wow, Krishna, which Awards are taxable?
Krishna: Arjuna, if a person receives prize from Unapproved authority or any Game show, Entertainment program, etc then it will be taxable. E.g. if a person receives Rs. 1 Crore from Kaun Banega Crorepati then it will be taxable. According to section 56(2) the said income is chargeable to tax under Income from Other Sources. Those Prizes which are not Government approved are liable to tax. The “Bharatratna” Award received by Sachin Tendulkar is tax free but “Wisden Cricketer” Award received by him is taxable. Government approval is required to make an Award tax free. Nowadays huge amount of Prizes are given to sport players in IPL, Kabaddi league, Football league etc. and they are taxable. Likewise Film artist receiving Film fare award is taxable.
Arjuna: Krishna, how much of Income tax has to pay on this?
Krishna: Arjuna, on these Awards and prices flat 30% of income tax is required to be paid. If the amount of the Prize exceeds Rs. 10,000 then TDS is required to be deducted and the remaining amount is given to winner. It means even if one receives a price, tax has to be paid first; because of which the winner may become nervous.
Arjuna: Krishna, what are the provisions if the Prize is received in kind?
Krishna: Arjuna, it is difficult to run away from the Income Tax. Tax is required to be paid for Prizes received in Kind. E.g. if a person receives a car in a game Show then he has to pay 30% tax on the said amount. It is the responsibility of the Prize giver to make sure that the Prize receiver has paid the taxes.
Arjuna: Krishna, what should one learn from the provisions of tax on Awards?
Krishna: Arjuna, it is a great honor to receive the Nobel Prize. It is a reward of the work done for needy and poor people. Some Awards are given for talent and brilliance. Further luck also plays a part in winning Awards. The Government levies tax on Prizes and Awards after taking its importance in public interest. A person doing good deeds in life, will get rewarded for it and for bad deeds will have to pay the prize for it!
Dear taxguru lovers your comments please.