Casual Income in Income Tax: Meaning, Tax Rate, Examples and How to Declare?

When you win a lottery or any bets, a persistent question arises, "Do I have to pay taxes on this income? As they are not your regular income, you may think that you can forgo paying taxes on them. However, that is not the case, and you will need to understand the concept of casual income.

The Indian Government levies a flat tax rate on casual income with the intention of discouraging winnings from gambling or betting. Section 115BB of the Income Tax Act deals with the tax rate charged on casual incomes.

This article will give you a clear picture of casual income meaning, examples, tax rates and applicable sections to deal with the same.

What is casual income in income tax?

In income tax parlance, casual income is an extra financial boost that cannot be relied upon as a steady stream of revenue. It represents a one-time occurrence and does not fall under any contractual agreements or future expectations. Casual income is unpredictable, defying any established patterns or distributions. Furthermore, it encompasses any unforeseen and unscheduled inflows of money.

While understanding the meaning of casual income, it is important for you to understand some of its key provisions. These are:

• Any expense related to a casual income is not deductible. If you incur any cost to earn casual money, it will not get deducted from any earnings. For instance, the cost of buying a lottery ticket will not be deducted from the income received against it.
• As per Section 194B, winnings from things like lotteries, card games or crossword puzzles are subject to TDS (tax deducted at source) if they exceed Rs.10,000. The TDS rate is 31.2%, including cess and surcharge. The organisation distributing the prize money is responsible for deducting TDS.
• You are not permitted to set off any losses. If you have any casual loss instead of income, the amount will not be subtracted from any of your income.

Example of casual income

Examples related to casual income encompass the thrilling realm of winnings, such as lottery jackpots, quiz shows, poker games, successful sports betting, crossword or other puzzle-solving, and various other stimulating games of chance. Lotteries offer an opportunity for individuals to strike it rich by claiming prizes through draws or sheer luck. 

Casual income tax rate

Under the Income Tax Act, casual income is charged under the head of "Income from Other Sources" and is taxable as per Section 115BB. 

The tax implications for your casual income are as follows:

• A flat tax rate of 30% gets charged on your casual income. After adding cess, the rate amounts to 31.2%.
• If you receive any prize in kind, such as a car, the distributor of the prize must make sure the tax has been paid before awarding it.
• If you win prize money in cash, demand draft, or cheque of more than Rs.10,000, you will receive the money after a deduction of 31.2% TDS under Section 194B.
• If you receive any prize in kind and cash, your total tax will be calculated based on the cash received and the market value of the prize in kind.
• TDS will apply to your winning amount from the horse race if it exceeds Rs.10,000.

Casual income section

Your casual income gets taxed under Section 115BB of the Income Tax ACT 1961. The main objective of this section is to check tax evasion and ensure no discrepancies regarding income sources.

The casual incomes that fall under this category are:

• Crossword puzzles
• Lotteries
• Races that include horse races
• Any betting or gambling games
• Card games

You will be taxed at a flat 30% rate on your casual income under Section 115BB. Additional surcharge and cess are applied on this tax rate, amounting to 31.20% in total. If you incur any expense, it shall not get deducted from your total casual income. The benefits of any basic exemption limit are also unavailable on such income.

Moreover, under this section, it is important to deduct TDS from your taxable income. If your taxable income exceeds Rs.10,000, the person making such payment has to deduct TDS under either Section 194B or 194BB.

• Section 194B: Winnings from crossword puzzle or lottery
• Section 194BB: Winnings from horse races

Which income is not treated as a casual income?

Even though there are various incomes under the category of casual income, there are some incomes that are not classified under this head. Earnings not treated as casual income are:

• Receipts from business or occupation or a profession
• Capital gains charged under the provisions of Section 45
• Any receipts added to an employee's remuneration, such as prerequisites or bonuses

How to declare casual income?

You need to declare your casual income while filing ITR-1 online. This income is taxable under the heading “Income from Other Sources”.  You need to declare the amount of prize money you received while filing tax returns. You must also submit the TDS certificate as proof of payment of all taxes on your winnings.

How to calculate tax for casual income?

To understand how you can calculate your taxable casual income, go through the following examples.

1. Rohit won Rs.1,00,000 from gambling, and Raj is responsible for handing over the winning amount to Rohit. Hence, Raj has to deduct 31.2% TDS from the winning amount. Under Section 115BB, he must deduct Rs.31,200 from the total amount.
2. Suppose, in a crossword competition, Rohit won Rs.20,000 in cash and a car worth Rs.80,000, and Raj will pay the cash and give the car. While making the payments, Raj needs to deduct tax at a rate of 31.2%. In this scenario, it is not sufficient to deduct tax from the winning amount. So during payments, Raj must deduct Rs.20,000 from the winning amount and take Rs.11,200 as tax from Rohit. 

Final word

Section 115BB of the Income Tax Act deals with tax rates charged on casual income, that is, a flat rate of 30%. Deductions or exemptions are not allowed on these incomes. You can declare your casual income while filing ITR-1 under the head of “Income from Other Sources”. It is important for you to know how your casual income is taxed and calculated to avoid any discrepancies during ITR filing.

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