Awards given in public interest by the Central or State Government or any other body after approval from the Government are tax-free. For e.g., prizes given to the winners of the Olympics, Asian Games or Commonwealth Games, etc. According to Section 10(17A) of the Income Tax Act, these are tax-free. Get all such intel and updates With income tax consultation by Tax HelpDesk. It offers one of the best GST and income tax-related services. Keep the article to learn more.
Income Tax on Awards in India
Income tax is complicated. To determine if awards are taxable or not, you’d have to read through a slew of sections, subsections, clauses, sub-clauses, provisions, amendments, and so on. But don’t worry, we’ve done the research for you and give a straightforward response to the subject at hand.
In India, income tax on awards is determined by a number of variables; specifically –
- Who gave you the award?
- What was the purpose of the award?
- Is the award approved by the government?
When is the award taxable?
Awards obtained from any non-government authority, or from any game show or entertainment program, etc., are taxed. For example, ICC Cricket honors, Grammy awards, and awards from reality programs such as KBC, Indian Idol, and others will be taxable.
These are taxable under the heading ‘Income from Other Sources’, according to Section 56(2) of the Income Tax Act.
In the case of cash awards, regardless of income level, a fixed rate of 30% (plus cess) is due. If the recipient’s income exceeds $10,000, the reward will be paid after a 30% TDS reduction. If the prize is in kind, the market value of the award is taxed at the same rate.
When is the award tax-free?
Tax-free awards are awarded in the public interest by the Central or State Governments or any other entity with the agreement of the Government. Prizes are granted to winners of the Olympics, Asian Games, or Commonwealth Games, for example.
These are tax-free, according to Section 10(17A) of the Income Tax Act.
For example, Sachin Tendulkar’s Bharat Ratna award from the Government of India is tax-free. The ‘Wisden Cricketer’ award he earned from a foreign organization, on the other hand, is taxable.
But it isn’t all. While prizes to Olympic competitors are initially tax-free, there is more to the story than you may realize.
The Golden Boy’s friction with the Taxman
It was the year 2006. At the World Championships, India won its first gold medal in shooting. The same shooter would go on to win a gold medal in the Olympics in Beijing two years later. He was already the recipient of the Arjuna medal, the Rajiv Gandhi Khel Ratna award, and the Padma Bhushan (later), and he became the first Indian to hold both the World and Olympic titles! Abhinav Bindra is my name.
Following his Olympic gold medal, he was rewarded more than Rs 3 crores by various authorities. The taxman knocked on his door upon his arrival in the motherland. They believed that because these awards were considered income for Mr. Bindra, he was required to pay taxes on them.
Mr. Bindra maintained that because the shooting was not a professional sport in and of itself, he was not a professional athlete and so was not required to pay taxes on those gifts (as per circular number 447). However, the tax authorities stated that, with the establishment of gift taxes, circular number 447 was no longer valid, and Mr. Bindra was required to pay the taxes.
Consider this: even if the circular had been genuine (which the Tribunal did not dispute), don’t you believe that Mr. Bindra was a professional athlete with his training and achievements? So, take what you will from that.
In any case, Mr. Bindra stated that the majority of the awards were given by Government-approved authorities and hence were not taxable. At this time, he was correct. But then the tax authorities had something to say about it.
Is Award an Income?
First and foremost, what exactly is an income? An income is a monetary reward for doing or refraining from doing something. And what exactly is an award?
An award is typically a one-time contribution made completely out of the generosity of the person making it. This is not an agreed-upon sum of money in exchange for doing or not doing something (unlike gambling & game shows, etc). As a result, an award is a ‘Capital Receipt’ rather than an income.
The income tax requirements of India do not apply to capital receipts. As a result, it is neither taxable nor tax-free. In essence, a prize is not a source of revenue.
To summarise, Mr. Bindra did not have to pay any taxes on the rewards he won.
What does it mean?
Only presents given to the victors by the Central or State governments, as well as other government-approved agencies, appear to be tax-free. However, not the others.
For example, Neeraj Chopra will have to pay 30% tax on the SUV supplied to him by Anand Mahindra (unless Mr. Mahindra is generous enough to take the haircut himself). Also, even if granted by the government, the trophies presented to the women’s hockey team are taxed (since they were not winners).
The Bottom Line
India has far more potential than the rest of the world realizes! It’s just that we don’t always have the correct kind of motivation (which isn’t necessarily due to a lack of resources). We must provide the impetus that Indian sports desperately require. And this might result from acknowledging efforts rather than just winners.
Mr. Bindra, who did not qualify for the 2000 Olympics and did not win a medal in 2004, went on to win gold in the following Olympics! As a result, you never know. Get all of this information and updates. Tax HelpDesk provides income tax consultation. It provides one of the greatest GST and income tax services.