Sub-section (1) overrides the rest of the Act and works through a Table: where an assessee of the kind in column B has income of the kind in column C, the tax payable is the tax on that income at the column D rate subject to the column E conditions, plus the tax on the rest of his total income as if that income had been taken out. The six rows are: winnings from lottery, crossword, races including horse races (excluding owning and maintaining race horses), card and other games, and gambling or betting, at 30%; royalty of a resident patentee on a patent developed and registered in India at 10%, with no deduction for expenditure and an option to be exercised in the prescribed manner by the section 263(1) due date; income from transfer of carbon credits at 10% with no deduction for expenditure; income from transfer of a virtual digital asset at 30% with no deduction except cost of acquisition, no set off of loss and no carry forward of it; net winnings from online games, computed as prescribed, at 30%; and profits and gains of life insurance business at 12.5%. Sub-section (2) defines the terms the Table turns on, including carbon credit, online game, patentee, royalty, and 'developed', which requires at least 75% of the expenditure on the invention to have been incurred in India, and applies the section 2(109) meaning of transfer to a virtual digital asset whether or not it is a capital asset.
Why it is there
It collects incomes that Parliament has decided should bear a fixed rate regardless of the assessee's other income — windfalls, patent royalties, carbon credits, virtual digital assets, online gaming winnings and life insurance profits — and taxes each at its own rate with its own restrictions on deductions and losses. Splitting the computation into the special-rate income and the rest prevents the special income from being absorbed by expenditure, losses or slab thresholds.
Who it applies to
Any person with winnings from lottery, crossword puzzle, race, card or other game, gambling or betting
A person resident in India who is a patentee of a patent developed and registered in India
Any person transferring carbon credits
Any person with income from the transfer of a virtual digital asset
Any person with net winnings from an online game
Any person carrying on life insurance business
The figures, and what each one turns on
Read the condition in the same row. A figure quoted without it is a wrong answer with a citation attached.
What
Figure
The condition on it
Where
Rate on winnings from lottery, crossword puzzle, race, card or other game, gambling or betting
30%
Other than winnings from an online game, and excluding income from the activity of owning and maintaining race horses
Sub-section (1), Table Sl. No. 1
Rate on patent royalty of a resident patentee
10%
Patent developed and registered in India; no deduction for any expenditure or allowance; option to be exercised in the prescribed manner on or before the section 263(1) due date
Sub-section (1), Table Sl. No. 2
Lock-out where the patent option is not honoured
Five tax years
If in any of the five tax years after exercising the option the assessee does not offer the income at this rate, he loses the benefit for the five tax years after the year of default
Sub-section (1), Table Sl. No. 2, condition (c)
'developed', for the patent row
At least 75% of the expenditure incurred in India
By the eligible assessee, for the invention in respect of which the patent is granted under the Patents Act, 1970
Sub-section (2)(c)
Rate on income from transfer of carbon credits
10%
No deduction for any expenditure or allowance is allowed against it
Sub-section (1), Table Sl. No. 3
Rate on income from transfer of a virtual digital asset
30%
No deduction except cost of acquisition, no set off of any loss against it, and losses from such transfers cannot be set off elsewhere or carried forward
Sub-section (1), Table Sl. No. 4
Rate on net winnings from an online game
30%
Net winnings computed in the prescribed manner
Sub-section (1), Table Sl. No. 5
Rate on profits and gains from life insurance business
12.5%
No conditions stated in column E
Sub-section (1), Table Sl. No. 6
One carbon credit
Reduction of one tonne of carbon dioxide emissions or equivalent gases
Validated by the United Nations Framework on Climate Change and tradeable at prevailing market price
Sub-section (2)(a)
What this means in practice
Find your row before anything else — the rate, the assessee it applies to and the deduction restrictions all come from the row, and the section number alone tells you nothing. If you deal in virtual digital assets, the row is unforgiving: only cost of acquisition is deductible, a loss cannot be set off against anything, and it cannot be carried forward, so gains and losses do not net off even within the same year. A patentee wanting the 10% rate must exercise the option in the prescribed manner by the section 263(1) due date and then keep offering the income that way, because failing to do so in any of the next five years costs him the benefit for a further five. Winnings and online game net winnings are taxed at 30% on the gross figure, with the rest of the total income taxed separately as if that income had been removed.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
An individual with salary income also transfers two virtual digital assets in the same tax year, making a gain of Rs. 30 lakh on one and a loss of Rs. 8 lakh on the other. Table Sl. No. 4 taxes the Rs. 30 lakh at 30%, that is Rs. 9 lakh, and the loss cannot be set off against it or against anything else, nor carried forward — so the two do not net to Rs. 22 lakh, and the Rs. 8 lakh is simply gone. Only cost of acquisition is deductible; no other expenditure or allowance is. His salary is then taxed separately under sub-section (1)(b), at the rates that would have applied had his total income been reduced by the Rs. 30 lakh.
Where you meet this section
In the special-rate income schedule of the return and in the section 270(1) intimation or the assessment that recomputes tax at the Table rate for the row concerned. The one row with a procedural step of its own is Sl. No. 2: a resident patentee wanting the 10% rate must exercise the option in the prescribed manner on or before the section 263(1) due date, and keep offering the income that way for the next five years.
The words themselves
the income-tax payable by such assessee, for a tax year, shall be the aggregate of— (a) income-tax calculated on income mentioned in column C, at the rate mentioned in column D, subject to the conditions specified in column E; and (b) income-tax with which the assessee would have been chargeable had his total income been reduced by income mentioned in column C thereof.
s.194(1), Income-tax Act, 2025.
What people get wrong
Treating race winnings and race horse income alike. Table Sl. No. 1 expressly excludes income from the activity of owning and maintaining race horses.
Netting virtual digital asset losses against gains or carrying them forward. Condition (b) to Table Sl. No. 4 bars set off against any income and bars carry forward.
Assuming any patent royalty qualifies for 10%. The patentee must be resident, the patent developed and registered in India, and 'developed' requires at least 75% of the expenditure on the invention to have been incurred in India.
Claiming expenses against carbon credit or patent royalty income. Both rows deny any deduction for expenditure or allowance.
Confusing the two 30% gambling rows — Sl. No. 1 expressly excludes winnings from an online game, which are taxed on net winnings computed in the prescribed manner under Sl. No. 5.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
115B - Tax on profits and gains of life insurance business
115BB - Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever
115BBF - Tax on income from patent
115BBG - Tax on income from transfer of carbon credits
Rules of the Income-tax Rules, 2026 that work section 194. Where the rule’s own heading names the section we say so; the rest are marked on reading the rule, which is our derivation and not the department’s. A rule that serves the section silently and that we have missed will not appear here.
Rule 134 — Exercise of option for taxation of royalty income from patent under section 194(1) [Table: Sl. No. 2]
Rule 135 — Calculation of net winnings from online games for purpose of section 194(1) [Table: Sl. No. 5]
A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.
Circular No. 467 — Instructions for deduction of tax at source from winnings from lottery or crossword puzzle or horse race during financial year 198 1986-08-21
A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 194. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
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Free calculators on VittSphere ONE for the very provision this page is about. They open in the same window.
Crypto tax calculator— the flat charge under section 115BBH, with no set-off of losses and no expenditure.
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.
