Many taxpayers who win lottery prizes, game show rewards or online gaming payouts believe that once TDS has been deducted, they have nothing more to report while filing their ITR. That’s not the case. Even though tax is collected upfront, the income must still be disclosed in the return. Experts say non-reporting can lead to mismatches in the Annual Information Statement (AIS) and potential scrutiny from the tax department.
How are lottery and prize winnings taxed?
According to an tax expert, lottery and prize money are taxed at a flat rate of 30 percent, along with applicable surcharge and cess.
The payer is required to deduct TDS before releasing the winnings if the amount exceeds Rs 10,000. Under the tax law, the responsibility for deducting TDS rests with the organiser or payer of the prize money.
Another tax expert said that lottery winnings, game show prizes, online gaming winnings, crossword puzzle rewards and similar income are taxable under special provisions and must be reported under the head “Income from Other Sources” in the ITR.
Why must you report the income even after TDS deduction?
Many taxpayers believe that because TDS has already been deducted at 30 percent, they do not need to mention the income while filing their return. Experts caution that this is a common mistake.
Patnaik explained that while TDS may have already discharged the tax liability on the winnings, taxpayers are still required to disclose the income in their ITR to correctly compute their total income and claim credit for the TDS deducted.
Failure to do so could create a mismatch between income reflected in the Annual Information Statement (AIS) and the income reported in the return.
He added that TDS is merely a mechanism for tax collection and does not replace the obligation to report income. Proper disclosure helps taxpayers claim TDS credit and ensures that information available with the Income Tax Department matches the return filed.
What happens if you don’t disclose lottery winnings in your ITR?
Experts warn that non-disclosure can trigger scrutiny from the tax department.
Omission of such income can result in TDS mismatches, prompting the department to seek an explanation from the taxpayer. In some cases, this may lead to notices for under-reporting of income.
Experts note that since lottery and prize payments are generally reported to the tax department through TDS and other reporting mechanisms, taxpayers who fail to disclose them may face tax demands, interest and penalties if discrepancies are detected.
Can you claim deductions or set off losses against lottery income?
Unlike salary income, business income or capital gains, lottery and prize winnings do not enjoy deduction benefits.
Tax experts point out that no deduction for expenses, allowances or commissions is permitted against such income. Similarly, taxpayers cannot set off any losses against lottery or prize winnings.
“The entire amount is taxed at the prescribed flat rate,” he said.
What should taxpayers keep in mind?
If you have earned income from lotteries, game shows, online gaming, crossword puzzles or similar prizes during the financial year, ensure that the gross amount is disclosed under “Income from Other Sources” while filing your ITR. Even if TDS has already been deducted, reporting the income correctly can help avoid AIS mismatches, notices and unnecessary tax disputes later.
