The IT department loves it when you win a lottery or when you win on KBC. Here's why

Every time you win a lottery, you have to pay a flat tax of at least 31.2%. That's easy money for the IT department, don't you think?

When Sushil Kumar won Rs 1 crore on KBC and released his stress by pouring water on his head on national TV, India celebrated with laughter and joy. The humble teacher had won not only the money but also the hearts of millions of viewers. But while the celebrations were on, many had this thought in their head: How much tax will he have to pay on this?

What do the tax laws say about lottery income? When a person receives an income from lotteries, game shows or even wins money from a sports event like horse racing, this kind of special income is taxed at 30% flat. A surcharge is added to this tax if it's applicable (either 10% or 15% depending on the tax slab) and a compulsory 'health and education cess' of 4% is added to this flat tax rate of 30%. So the final tax payable comes to about 31.2% to 35%, depending on your tax slab. 

So when Sushil Kumar won Rs 1 crore on KBC, he must have shown this under the head ''Income from Other Sources'' in his IT returns. Now, even if he otherwise fell in the 5% or 20% tax slab, he would still have to pay 30% tax (+4% cess + surcharge) on his lottery income of Rs 1 crore.

So, though he got a cheque for Rs 1 crore, the amount credited in his bank account would be less than Rs 70 lakh. 

• Now, the laws also say that tax can be deducted only if such lottery income is greater than Rs 10,000.
• Also, if you know about the tax slabs, you might know that you normally don't have to pay tax on the first 2.5 lakh of your income. This exemption is not available for lottery winners, and they cannot adjust their lottery income against this basic exemption of Rs 2.5 lakh. They have to pay tax on the entire amount. 

So here is a table that shows an approximate amount of tax a normal winner has to pay when they win on KBC. This amount excludes the surcharge since the surcharge depends on individual tax slabs. 

Now, what if you win a car? You might remember the game show 'Khul Ja Sim Sim' from 2001 that was hosted by Aman Verma on Star Plus. Here, some members of the audience would play a game and the winner would win a car or a kitchen appliance or even SOTC tickets to the Maldives.

So how does one pay tax here? Here the game show producer is responsible to collect the tax from the winner in cash and then release the prize to the winner.

So, if you win a car whose market value is say Rs 6 lakh, the game producer will collect 30% tax on the market value of the car, ask you to deposit approximately Rs 1,80,000 and then you can drive your car away.  

Why does the IT department love it? The income tax department makes an easy 30% + tax without any effort, based on your efforts and luck. Though the IT department may have to hustle or go through multiple procedures like checking your tax returns, checking transactions by companies, getting into legal court matters, etc to collect taxes from you, tax on lottery is just like a free bonus and is simply levied without any questions, without any hard work. 

So, the next time you cheer for someone on KBC, remember: The IT department is cheering for them too.