The Income-tax Act, 1961
Bare Act
Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of:
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the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of thirty per cent.; and
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the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).
Explanation- For the purposes of this section, "horse race" shall have the same meaning as in section 74A.
Simplified Act
If you earn money from things like lotteries, crossword puzzles, horse races (but not from owning and operating race horses), card games, other games, or any form of gambling or betting, your tax will be calculated as follows:
- First, tax will be calculated on the money you won from these activities at a rate of thirty percent.
- Then, calculate the tax on your other income, as if the money you won was not part of your total income.
Note: The term "horse race" used here means the same as it does in section 74A of this law.
Explanation using examples
Imagine that Mr. Sharma, a software engineer, wins a jackpot of INR 1,00,000 in a local lottery. His regular annual income from his job is INR 8,00,000. Under Section 115BB of The Income-tax Act, 1961, Mr. Sharma's lottery winnings are subject to a flat tax rate of 30%.
Here's how his tax liability would be calculated:
- Tax on lottery winnings at 30%: INR 30,000 (30% of INR 1,00,000).
- Tax on his regular income (after reducing lottery winnings): The income tax on INR 7,00,000 (INR 8,00,000 minus INR 1,00,000), as per the applicable tax slabs.
Mr. Sharma's total tax liability would be the sum of the tax on his lottery winnings and the tax on his reduced regular income.
