Price in Competition: What is the Income Tax implication

Reply by Ms. Parizad Sirwalla, CA

 Recently won Rs.2 lakh in a competition. What is the Income tax implication of this

—Mr. Subhash Agarwal

The entire amount of Rs.1 lakh received as prize money from the cooking competition will be taxable under the head “income from other sources” at a flat tax rate of 30 %.

Additionally, if your total taxable income during financial year (FY) 2014 exceeds Rs.1 crore, you will have to pay surcharge at 10% on the basic rate (i.e., 30%).

 

Ms. Parizad Sirwalla, CA

Further, you will have to pay an education cess of 3 % on basic as well as surcharge (if surcharge is applicable in your case).

Further, according to the domestic tax law, the entity that is giving the prize money is responsible for deducting tax at a flat rate of 30%, while paying the prize money. It will also issue a withholding tax statement—Form 16A—depicting the prize amount and the tax deducted on the same.

Accordingly, you may be required to pay the balance tax, which will be towards surcharge, if applicable, and education cess by way of “advance tax” (if tax is deposited by 31 March) or “self assessment tax” with appropriate interest (if tax is deposited after completion of relevant fiscal, i.e., after 31 March).

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