Instructions for deduction of tax at source from winnings from lottery or crossword puzzle or horse race during financial year 1986-87 at the rates specified in Part II of First Schedule to Finance Act, 1986
Circular No. 478 was issued by the Central Board of Direct Taxes on 14 January 1987. Its subject is Instructions for deduction of tax at source from winnings from lottery or crossword puzzle or horse race during financial year 1986-87 at the rates specified in Part II of First Schedule to Finance Act, 1986.
Fixes how much of a lottery, crossword puzzle or horse race win is exposed to deduction at source. Where the winnings, together with any other casual and non-recurring receipt, do not exceed Rs. 5,000 in the year, no tax is leviable. Where they exceed Rs. 5,000, tax is deducted at 40 per cent on the gross winnings after treating Rs. 5,000 as exempt under section 10(3), for payments made on or after 1 June 1986. Gross winnings for this purpose means what the prize winner gets after deducting the amount payable to commission agents. The circular annexes the individual rate schedule from Sub-Paragraph I of Paragraph A of Part III of the First Schedule to the Finance Act, 1986, which begins at nil up to Rs. 18,000 and rises to Rs. 29,250 plus 50 per cent above Rs. 1,00,000.
Enquiries came from various quarters about the quantum of winnings exigible to deduction at source, following the department's Circular No. 467 dated 21 August 1986 on the same subject.
Instructions for deduction of tax at source from winnings from lottery or crossword puzzle or horse race during financial year 1986-87 at the rates specified in Part II of First Schedule to Finance Act, 1986
ANNEX I - EXTRACT FROM THE FINANCE ACT, 1986, SUB-PARAGRAPH I OF PARAGRAPH A OF PART III OF FIRST SCHEDULE
Paragraph A
Sub-Paragraph I
In the case of every individual or Hindu undivided family or unregistered firm or other association of persons or body of individuals, whether incorporated or not, or every artificial juridical person referred to in sub-clause (vii ) of clause (31) of section 2 of the Income-tax Act, not being a case to which Sub-Paragraph II of this Paragraph or any other Paragraph of this part applies :—
Rates of income-tax(1)
where the total income does not exceed Rs. 18,000
Nil;
(2)
where the total income exceeds Rs. 18,000 but does not exceed Rs. 25,000
25 per cent of the amount by which the total income exceeds Rs. 18,000;
(3)
where the total income exceeds Rs. 25,000 but does not exceed Rs. 50,000
Rs. 1,750 plus 30 per cent of the amount by which the total income exceeds Rs. 25,000;
(4)
where the total income exceeds Rs. 50,000 but does not exceed Rs. 1,00,000
Rs. 9,250 plus 40 per cent of the amount by which the total income exceeds Rs. 50,000;
(5)
where the total income exceeds Rs. 1,00,000
Rs. 29,250 plus 50 per cent of the amount by which the total income exceeds Rs. 1,00,000.
CLARIFICATION 2
1. I am directed to refer to this Department’s Circular No. 467 [F. No. 275/69/86-IT(B)], dated 21-8-1986] [Clarification 1] on the above subject and to say that enquiries have been received from various quarters about the quantum of income by way of winnings from lottery/crossword puzzles/horse races that is exigible to the provisions relating to deduction of tax at source. The position is therefore, clarified as under :
(1) No tax shall be leviable in respect of winnings from lottery/crossword puzzles/horse races, where the amount received from such winnings together with any sum received as casual and non-recurring receipt in the aggregate does not exceed Rs. 5,000 in a year.
(2) Where such winnings exceeds Rs. 5,000, tax is to be deducted at source at the rate of 40 per cent on the gross winnings, after treating Rs. 5,000 as exempt under the provision of section 10(3), if such payment is made on or after 1-6-1986.
2. The term "gross winnings" appearing herein means the payment received by the prize winner after deduction of the amount to be paid to commission agents.
Circular : No. 478 [F. No. 275/106/86-IT(B)], dated 14-1-1987.
A dispute over how much was deducted on a mid-1980s lottery prize, particularly where an agent's commission was involved.
A prize of Rs. 30,000 is payable, of which Rs. 3,000 goes to the commission agent. Gross winnings are Rs. 27,000. Rs. 5,000 is treated as exempt and 40 per cent is deducted on the balance basis the circular prescribes.
Source: the Income Tax Department’s own published text — its page for this instrument.