Section 194B & 194BB: TDS on winning Lottery, Game, or Betting

Introduction

Winning a lottery, game show, or betting contest can be exciting, but it also comes with tax responsibilities. As per the Income Tax Act, Section 194B, any winnings from lotteries, game shows, crossword puzzles, or similar competitions are subject to TDS (Tax Deducted at Source). Similarly, Section 194BB covers TDS on winnings from horse races. These taxes are deducted before you receive your prize money, ensuring compliance with government tax laws. Let’s understand in simple words how Section 194B and 194BB work, who deducts the tax, applicable rates, and the due dates for FY 2025-26.

What is Section 194B?

Section 194B of the Income Tax Act, 1961 states that any income earned from lotteries, puzzles, or games is subject to Tax Deducted at Source (TDS). It applies when the total winning amount exceeds ₹10,000 in a financial year.

This section ensures that people who earn large sums from chance-based events pay taxes on such income. The TDS is deducted by the payer (organizer or company) before giving the prize to the winner.

Key Points:

• Applicable on cash, goods, or a combination of both.
• TDS must be deducted at the time of payment.
• Threshold limit: ₹10,000 or more in a financial year.
• The payer deposits the TDS with the Central Government.

So, whether you win a TV quiz, online contest, or lottery, the tax is deducted first and the remaining amount is paid to you.

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Incomes under Sec 194B

TDS under Section 194B applies to:

• Lottery winnings
• Crossword puzzles
• Game shows (TV, radio, or online)
• Card games and betting
• Gambling winnings
• Prize contests of a similar nature

When & Who Shall Deduct TDS u/s 194B

The organizer or payer is responsible for deducting TDS before paying the winner.

• Who deducts: The person or company offering the prize (like TV channels, online platforms, or lottery organizers).
• When to deduct: TDS is deducted at the time of prize distribution.

If the prize is in kind (like a car or holiday trip), the winner must pay the tax before receiving the prize.

What is the rate of TDS u/s 194B?

Updated Rates for Financial Year 2025-26:

The rate of TDS under Section 194B is 30% of the winning amount.

On top of this 30% tax, there are a few extra amounts called Surcharge (if the winning amount is very high) and Health and Education Cess (at 4%), which is applied on the tax amount.

Winning Amount (in a single transaction)

TDS Rate (Basic)

Effective Tax Rate (including Cess)

Exceeds ₹10,000

30%

31.20% (30% + 4% Cess on 30%)

Note: For very high winnings (like above ₹50 lakh or ₹1 crore), a Surcharge is also added, making the total effective rate even higher.

Section 194BB: TDS on Winnings from Race Horses

Section 194BB applies to TDS on winnings from horse races. It ensures that tax is deducted from the prize money of horse race winners conducted in any horse racing club or turf club.

Key Points:

• Applicable when the winning amount exceeds ₹10,000.
• The payer (race club or organizer) must deduct TDS before paying the prize.
• TDS is only applicable to the actual winnings, not to the total bet amount.

This prevents people from avoiding tax by withdrawing the entire amount of winnings.

When & Who Shall Deduct TDS u/s 194BB and Rate u/s 194BB

• The person or race club paying the winning amount.
• The TDS must be deducted at the time of paying the winnings to the winner. If the prize is paid in parts (installments), the tax deduction should be made on each part separately.
• TDS is deducted only if the amount of winnings from a single horse race transaction exceeds ₹10,000.
• The tax deduction rate is a flat 30%.

Just like Section 194B, the final effective tax rate includes the 4% Health and Education Cess, making it 31.20%. If the winnings are very high, a Surcharge may also apply

Due Date to Deposit TDS u/s 194B & 194BB

Month of Deduction

Due Date to Deposit TDS

April to February

7th of the following month

March

30th April of the next financial year

Notes:

• The TDS must be deposited electronically through Challan ITNS 281.
• Failure to deposit TDS within these dates attracts interest and penalties.

TDS Certificate

Once the tax has been deducted, the deductor must issue a TDS certificate (Form 16A) to the winner.

Details in the TDS Certificate:

• Name and PAN of the deductee (winner)
• TAN and name of the deductor (payer)
• Amount of winnings
• TDS amount deducted and deposited

This certificate helps the taxpayer claim credit while filing the Income Tax Return (ITR) and ensures no double taxation.

What is the Penalty for Non-Compliance under Section 194B and 194BB?

If the payer fails to deduct or deposit TDS under Sections 194B or 194BB:

1. Interest: 1% per month for late deduction; 1.5% per month for late deposit.
2. Penalty (u/s 271C): Equal to the amount of tax not deducted.
3. Late filing of TDS return (u/s 234E): ₹200 per day until the return is filed.
4. Prosecution (u/s 276B): In severe cases, imprisonment from 3 months to 7 years.

These rules ensure proper compliance and accountability.

How is Tax Computed on Lottery Winnings?

The entire amount of winnings is fully taxable under the head “Income from Other Sources”. No deductions or exemptions are allowed.

Example:

If you win ₹5,00,000 in a lottery:

• TDS (30%) = ₹1,50,000
• Net amount received = ₹3,50,000
• This ₹5,00,000 is included in your total income and taxed at 30%.

Even if you are in a lower tax bracket, lottery winnings are always taxed at 30% (flat rate) plus 4% cess.

Conclusion

Sections 194B and 194BB ensure that taxes are collected fairly on lottery, game show, and race winnings. For FY 2025-26, the TDS rate remains 30%, deducted before payment to the winner. Whether the prize is in cash or kind, the tax must be paid first. Winners should collect their TDS certificates and include these details in their ITR to avoid double taxation. Understanding these rules helps you stay compliant and enjoy your winnings responsibly.