Casual Income

Author : Law Legends | Published On : 12 Dec 2023

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 in Income Tax 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.

Tax implication for Casual Income

Casual income is chargeable under the head 'Income from other Sources' under section 115BB of the Income Tax act.

You have to pay tax on casual income at a flat rate of 30% which, after adding the cess, amounts to 31.2%.

For example, if your casual income is ?3 lakh, then a tax of ? 90,000 will be applicable on the amount along with the education cess. Casual income is included in the gross and total income, but while assessing tax liability of an individual or firm, it is separated from overall total income.

If the prize money is more than Rs, 10,000 and received in cash, cheque or demand draft, then the winner will get the winning amount after the TDS (Tax Deduction at Source) at 31.2%.

If the prize is received in kind, say a car, the distributor of the prize must ensure that the tax is paid before awarding the prize.

If the prize money is received in both cash and kind, then the total tax will be calculated according to the money received in cash and on the market value of the prize given in kind.

Casual income examples, for instance, are money received as a prize from lotteries, and sporting events, including horse races, crossword puzzles, etc.

With regards to the casual income tax rate, in accordance with section 115BB of the Income Tax Act, casual income is deductible under the heading "Income from Other Sources." Casual income is subject to a flat tax of 30%, which becomes 31.2% when the cess is included.

Which income is not treated as casual income?

Casual incomes in Income Tax do not include capital gains, earnings from a job or business, or one-time advantages like employee bonuses.

As a reward for effort and skill, the winnings from motor car rallies cannot be taxed as casual income. It is not counted as casual income when winning is the result of ability and effort.

Lottery held as stock in trade shall be taxed under PGBP and not other income because the lottery-holding individual is engaging in business activity.

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