- 18-Apr-2025
- Education Law
In India, lottery winnings are subject to a high rate of taxation. However, when these winnings are given as a gift to another person, the tax treatment becomes more complex. The taxation of lottery winnings as a gift is governed by provisions under the Income Tax Act, particularly Section 56(2) and Section 115BB. It is important to understand how such gifts are taxed and who bears the tax liability.
Lottery winnings in India are taxed under Section 115BB of the Income Tax Act. The total amount of the winnings is taxed at a flat rate of 30% (plus applicable cess), without any exemptions or deductions.
The tax on lottery winnings is levied on the winner, and the tax is payable regardless of whether the winnings are used personally, donated, or gifted to someone else.
If the winner of a lottery gift part or all of the winnings to another person, the gift is subject to the provisions of Section 56(2).
Section 56(2) of the Income Tax Act states that if a non-relative (someone not defined as a relative under the act) receives a gift of money or property worth more than Rs. 50,000, it is taxable in the hands of the recipient as income from other sources.
Lottery winnings, when gifted, are considered money and will be taxable if the value exceeds Rs. 50,000.
The recipient is required to pay income tax on the value of the gift as income from other sources, and the tax rate will depend on the recipient's total income and tax slab.
If the lottery winnings are gifted to a relative (as defined under Section 56(2), such as spouse, children, parents, etc.), the gift will be exempt from tax, even if the value exceeds Rs. 50,000.
This means that gifts of lottery winnings to relatives are not subject to gift tax. However, the winner will still be liable for the 30% tax on the lottery winnings before gifting the amount.
When the recipient receives lottery winnings as a gift, they must include the value of the gifted amount in their income tax return under income from other sources.
If the total amount of lottery winnings received as a gift exceeds Rs. 50,000, the recipient must pay income tax on the amount exceeding the threshold as income. The tax will be calculated based on the recipient's tax slab.
If the lottery winnings gifted to the recipient are below Rs. 50,000 in value, they are not subject to gift tax under Section 56(2).
In such cases, the recipient does not need to report the gift as income.
If a winner gifts Rs. 1 lakh in lottery winnings to a friend (a non-relative), the recipient must report the gift as income and pay tax on the full amount exceeding Rs. 50,000. The recipient will be taxed based on their income tax slab.
If the winner gifts Rs. 1 lakh in lottery winnings to their spouse (a relative), the gift will be exempt from tax for the recipient. However, the winner will still pay 30% tax on the lottery winnings under Section 115BB.
If the winner gifts Rs. 40,000 in lottery winnings to a non-relative, the gift will not be taxed, as it is below the Rs. 50,000 threshold.
A person wins Rs. 5,00,000 in a lottery. They decide to gift Rs. 1,00,000 to a friend (non-relative).
The winner pays 30% tax on the full Rs. 5,00,000 (i.e., Rs. 1,50,000 as tax).
The recipient must report the Rs. 1,00,000 as income from other sources and will be taxed according to their income tax slab.
A person wins Rs. 10,00,000 in a lottery. They gift Rs. 2,00,000 to their brother (relative).
The winner still pays 30% tax on the Rs. 10,00,000 (i.e., Rs. 3,00,000 as tax).
The brother does not have to pay any gift tax on the gift, as it is received from a relative. The winner is responsible for the tax on the winnings.
A person wins Rs. 2,00,000 in a lottery and gifts Rs. 40,000 to a friend.
Since the gift is below Rs. 50,000, it is not taxable for the recipient. However, the winner still pays 30% tax on the full lottery amount.
Lottery winnings in India are subject to 30% tax at the time of winning under Section 115BB of the Income Tax Act. When lottery winnings are gifted to a non-relative, the recipient is liable to pay tax on any amount exceeding Rs. 50,000 as income from other sources. However, gifts made to relatives are exempt from gift tax. Therefore, while the winner pays tax on the lottery winnings, the recipient of the gift may also have to pay tax depending on the value of the gift and their relationship to the giver.
Answer By Law4u Team
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