What are the factors for deciding taxability of awards
The taxability of awards can be understood better by reading the provisions of the Indian Income tax act in the sections 10(17A) & 56(2).
Taxability of awards can be classified into 2 sections in Income tax act i.e., sec. 10(17A) & 56(2).
Sec 10(17A) talks about the types of awards which are tax free. While Sec 56(2) talks about the types which are taxable.
Factors for deciding taxability of awards?
1. From whom
2. For what purpose
3. Approved by central govt. or state govt. or not?
Tax free awards: -
Sec 10(17A) reads as under: -
To be eligible for an exemption under sec 10(17A):
In case of award:
Any award instituted in public interest by CG/SG or by any other body & approved by CG in this behalf.
In case of reward:
Any rewards received from SG or CG shall be approved by CG as exempted u/s 10(17A).
Taxable Award: -
Any other awards which are not falling under the exemption of sec. 10(17A) are taxable under the head income from other sources under sections 56(2)(v)/(vi)/(vii) as gifts received from various sources.
Any prize received from unapproved authority or any game show, entertainment programme, reality shows etc., will be taxable under the head Income from other sources.
E.g.:- if a person receives Rs. 1 crore from Big Boss; it will be taxable.
Amount of tax?
• The rate of tax is flat 30%.
• If the prize amount exceeds 10,000 then the 30% has to be paid in the form of TDS deduction.
It is very difficult to escape from payment of tax in India. Govt. feels that prizes and gifts are earned by mostly luck so they charge higher amount of tax (i.e., 30%) but some awards are earned by more hard work and talent. So it is clear that only those awards and rewards which are approved by the CG and feels that they are in public interest then only they are exempted.