Lottery Tax in Kerala: What is Tax on Kerala Lottery Prize Money?

Many people buy lottery tickets to fulfil their dreams. Their desire for financial success draws them to the lottery booth. It is a game of hit-and-miss, and the lure of victory keeps people buying more tickets.

Residents of Kerala are no strangers to the game of lottery. Many pin their hopes on winning it. If you are also one of them, you must remember that you will be able to receive only a part of your prize money. That’s right! This is because the government charges a certain amount as a lottery tax in Kerala. 

Here’s all you need to know about the lottery tax in Kerala and its rate.

Lottery Tax in Kerala

The Income Tax (IT) Act, 1961 is the law for taxation in India. Like any other income, lottery winnings are subject to income tax. Section 115BB and Section 194B contain provisions for taxing lottery winnings in India. Any income received as prize money from a lottery is taxed under the head 'Income from Other Sources’.

As per Section 115BB, when a taxpayer's total income includes any income from winnings from any lottery, then his/her total tax that has to be paid will be the sum of: 

• 30% tax on the winning amount 
• The amount of tax that person would have had to pay if his income did not include the winnings.

As per Section 194B, the person responsible for paying lottery winnings has to deduct income tax at the time of payment. It also says that if winnings are wholly or partly in cash or in kind but the cash part is not sufficient to meet one’s tax requirements, then the person responsible for paying this tax has to make sure that the tax has been paid before releasing any winnings.

Section 194B applies to winnings of more than Rs. 10,000. Thus no TDS (tax deducted at source) applies to winnings below Rs. 10,000.

Kerala state itself does not impose an additional tax on lottery winnings; the central government’s income tax is the primary tax on such winnings. However, Kerala earns revenue from the sale of lottery tickets, which contributes significantly to the state’s income.

Kerala Lottery Tax Details

The lottery tax is applicable even if the winner’s total annual income falls within the tax exemption slab. No deductions are available under income tax laws against the lottery income. 

The rewards are categorised as “Income from Other Sources” under Section 56 of the IT Act, 1961. 

How will you be taxed if you win a car or a fridge? In such a case, the item’s market value will be taken into account. This is what the tax rate is imposed on. It doesn’t matter what the item is: the rate of taxation will be the same.

Kerala Lottery Tax Percentage

Over and above the Kerala lottery prize tax of 30%, and 4% cess will also be applicable. This brings the effective taxation rate to 31.2%. In the case of the winnings exceeding Rs. 10 lakh, an additional 10% surcharge is also applicable. 

Thus, the Kerala lottery amount after taxes will be arrived at after subtracting 31.2% as tax. You are not eligible for any deductions or exemptions even if you invest this amount in any tax-saving instruments.

If someone wins ₹1,00,00,000 in a lottery in Kerala:

• Gross Winning Amount: ₹1,00,00,000
• Tax Deducted at Source (31.2%): ₹31,20,000
• Net Amount Received by Winner: ₹68,80,000

If the prize distributor or organiser of a lottery fails to pay tax under Section 194B, then a penalty equal to the amount of tax will have to be paid as per Section 271C of the IT Act, 1961.

Tax Details For Different Lottery Tickets In Kerala

According to Section 194B of the IT Act, 1961, a tax rate of 30% is applicable on lottery winnings exceeding Rs. 10,000. This is treated separately from the rest of the annual earnings of a taxpayer and is not eligible for deductions. It is the responsibility of a lottery organiser to deduct the Kerala lottery prize money tax before distributing a prize.

But you also have to consider payment under cess and surcharge. With it, the effective tax rate becomes 31.2%.

Conclusion

In this blog, we have covered all relevant information about the lottery tax in Kerala. From the taxation rate to relevant sections of the Income Tax Act, there are quite a few details to keep in mind. Irrespective of whether you win your prize in cash or kind, winnings over Rs 10,000 will attract TDS as per relevant laws.

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