Circular No
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536
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Date of Issue
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6.7.1989
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Section(s) Referred
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194B
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Statute
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Income-Tax Act
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Subject: Deduction of tax at source-Sections 194B and 194BB of the Income-tax Act, 1961 - Deduction from winnings from lottery or crossword puzzle or horse-race - Rates of tax applicable during the financial year 1989-90.
Reference is invited to this Department's Circular No. 515, dated 31st May, 1988 [F. No. 275/33/88-IT(B)], on the above subject, wherein the rates at which deduction of tax under sections 194B and 194BB to be made during the financial year 1988-89 from winnings from lotteries or crossword puzzles or horse-races were communicated.
2. According to the provisions of section 115BB of the Income-tax Act, 1961, any income of a casual and non-recurring nature of the type of winnings from lotteries, crossword puzzles, races including horse-races, etc. will be charged income-tax at a flat rate of 40%. According to the provisions of sections 194B and 194BB, every person responsible for paying to any person, whether resident or non-resident, any income by way of winnings from lotteries or crossword puzzles or horse-races in an amount exceeding Rs. 5,000 is required to deduct income-tax therefrom at the rates specified in this behalf in the Finance Act of the relevant year. In other words, no tax shall be deducted in respect of winnings from lotteries, crossword puzzles, horse-races, etc. where the amount received from such winnings does not exceed Rs. 5,000 in a year. Where such winnings exceed Rs. 5,000, tax is to be deducted at source at the specified rate on the gross winnings after treating Rs. 5,000 exempt under the provisions of section 10(3) of the Income-tax Act, 1961. The term "gross winnings" appearing herein means the payment received by the prize winners after deduction of the amount to be paid to commission agents.
3. According to the rates specified in Part II of the First Schedule to the Finance Act, 1989, income-tax at 40% shall be deducted at source from income by way of winnings from lottery, crossword puzzle and horse-race in the case of all categories of persons. The amount of income-tax thus deducted shall be increased :
(i) by a surcharge for purposes of the Union at 8% of such income-tax in the case of a resident Indian; and
(ii) by a surcharge at the rate of 8% of such income-tax in the case of a domestic company.
However, no tax will be required to be deducted in the case of a resident in the State of Sikkim from the winnings of a lottery, the draw of which is held in pursuance of any agreement entered into on or before 28th February, 1989, between the State Government of Sikkim and the organising agents of such lottery. A person shall be deemed to be a resident in the State of Sikkim if he fulfils the requirements mentioned in the explanation to clause (26AA) of section 10 of the Income-tax Act, 1961.
4. (a) According to the provisions of section 203 of the Income-tax Act, every person responsible for deducting-tax at source is required to furnish a certificate to the effect that tax has been deducted and to specify therein, inter alia, the amount deducted and other particulars that may be prescribed. The certificate has to be furnished within the prescribed period of one month to the person to whose account credit is given or to whom payment is made or the cheque or warrant is issued, as the case may be. By Notification No. S.O. 937(E), dated 10th October, 1988, old rule 31 of the Income-tax Rules, 1962, has been substituted by a new rule which provides for a unified form of certificate to be issued in Form No. 16. Detailed instructions regarding the issue of certificates for tax-deducted at source have been issued in Board's Circular No. 529, dated 13th February, 1989 [F. No. 275/3/89-IT(B)].
If a person fails to furnish a certificate as required by section 203, he shall, on an order passed by the Income-tax authority, under section 272A of the Income-tax Act, pay, by way of penalty, a sum which shall not be less than Rs. 100, but which may extend to Rs. 200 for every day during which the failure continues.
(b) According to the provisions of section 203A of the Income-tax Act, it is obligatory for all persons responsible for deducting-tax at source to quote the Tax-deduction Account Number (TAN) in the challans, TDS-certificates, periodical returns, etc. Detailed instructions in this regard are available in this Department's Circular No. 497, dated 9th October, 1987 [F. No. 275/118/87- IT(B)]. If a person fails to comply with the provisions of section 203A, he shall, on an order passed by the Assessing Officer under section 272BB, pay, by way of penalty, a sum which may extend to Rs. 5,000.
(c) According to the provisions of section 206 of the Income-tax Act, read with rules 36A and 37 of the Income-tax Rules, the prescribed person in the case of every office of Government, the principal officer in the case of every company, the prescribed person in the case of every local authority or other public body or association, every private employer and every other person responsible for deducting-tax under the provisions of Chapter XVII of the Income-tax Act shall prepare, within the prescribed time after the end of each financial year, and deliver or cause to be delivered by the 31st May following the financial year to the designated Income-tax Officer the annual return of deduction of tax under section 194B from winnings from lotteries and crossword puzzles on Form No. 26B and that under section 194BB from winnings from horse-races on Form No. 26BB prescribed under rule 37 of the Income-tax Rules. It may be noted that the third copy of the TDS-certificate issued to the assessee should be enclosed with the annual return.
If a person fails to furnish in due time the annual return, he shall, on an order passed by the Income-tax authority, pay, by way of penalty, a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees for every day during which the failure continues.
(d) According to the provisions of section 200 of the Income-tax Act, any person deducting any sum in accordance with the provisions of sections 194B and 194BB shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government. If he fails to deduct-tax at source or after deducting fails to pay the tax to the credit of the Government, he shall be liable to action in accordance with the provisions of section 201. In this connection, attention is also invited to the provisions of section 276B of the Income-tax Act according to which, if a person fails to pay to the credit of the Central Government the tax- deducted at source by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years and with fine.
5. The instructions are not exhaustive and are issued only with a view to helping the persons responsible for making deduction of tax at source under these sections. Wherever there is difference of opinion, a reference should always be made to the provisions of the Income-tax Act, 1961, and the relevant Finance Act through which the changes in law are made. In case any assistance is required, the Assessing Officer concerned or the Local Public Relations Officer of the Income-tax Department may be approached for the same, who will, if necessary, obtain orders of the higher authority in the matter.
6. The Content of this Circular may be brought to the notice of all concerned.
7. Copies of the circulars are available with the Directorate of Income Tax (RS & PR), 6th floor, Mayur Bawan, Connaught Circus, New Delhi-1
[F.No.275/88/89-IT (B) dated 6.7.89 from CBDT]
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