People think of a lottery ticket as only a fortune bag bringing in money. However, not everyone is aware of the tax liability that comes along with the fortune bag. Section 194G provides for the particulars of TDS on the purchase, distribution, and other activities associated with lottery tickets. Let’s discuss section 194G in detail.
Budget 2024 Update
The rate of TDS has been proposed to be reduced to 2% from 5%, effective 1st October 2024.
Scope Of Section 194G
Any income earned by a person in the form of commission, remuneration, or prize on lottery tickets (deductee) who has been selling lottery tickets (also stocking, distributing, and purchasing) is liable to pay taxes. The person responsible for making such a payment (deductor) for an income exceeding Rs 15,000 must deduct income tax before making the payment.
Rate Of TDS Under Section 194G
A tax deduction of 5% will be made at the source for such income. This rate is proposed to be reduced to 2% with effect from 1st October 2024. No additional taxes, such as surcharge or cess, will be levied on the specified rate. If the deductee's PAN is not quoted, a tax deduction rate of 20% will be applicable. However, tax cannot be deducted in the case where payment does not exceed Rs 15,000.
When Is Tax Deducted Under Section 194G?
Tax on income from lottery tickets can be deducted at the time of income credit to the deductee’s account or at the time of payment in cash, cheque, draft, or other payment methods, whichever is earlier. Whether such income is credited to a ‘suspense account’ or any other account as per the deductor's books of account, it is considered to be a payment made to the deductee’s account, and the provision of the section is applicable.
If the income earned from lottery ticket sales exceeds Rs. 15,000 in a financial year, the entity responsible for making the payment (deductor) must deduct tax at source (TDS) before disbursing the amount.
The deductor must deduct the TDS at the earliest of these two points:
- When the income is credited to the payee's account.
- When the payment is made, whether through cash, cheque, electronic clearing service (ECS), or any other mode.
Due Date To Deposit TDS Under Section 194G
The TDS is to be deposited to the government as follows:
- If the amount is deducted in March – on or before April 30 of the next financial year. For example, if the amount has been deducted in March 2024, then the TDS will be deposited to the department by 30 April 2024.
- In any other month – within seven days from the end of the month in which the tax deduction is made. For example, if the amount has been deducted paid in the month of September 2024, then the TDS will be deposited to the department by 7 October 2024.
Certificate Of No Or Lower TDS Under 194G
You can request the assessing officer (AO) via Form no. 13 and get a certificate that authorizes the payer to make nil tax or deduction at a lower rate. To receive the benefits of such a facility, it is mandatory to quote your Permanent Account Number (PAN) as per Section 206AA(4).
What Are The Responsibilities Of The Deductor?
- Filing TDS Returns: The deductor is responsible for filing a quarterly TDS return in Form 26Q, reporting the deducted tax to the government.
- Issuing TDS Certificates: The deductor must provide the payee with a TDS certificate in Form 16A, detailing the amount of tax deducted and deposited.