Section 194G of the Income Tax Act: TDS on Commission on Sale of Lottery Tickets

Section 194G of the Income Tax Act, 1961, mandates the deduction of Tax Deducted at Source (TDS) on income by way of commission, remuneration, or prize paid on the sale of lottery tickets. This section aims to bring such income into the tax net at the very point of its generation, ensuring timely revenue collection for the government.

Applicability of Section 194G

Section 194G applies to any person who is responsible for paying income by way of commission, remuneration, or prize (by whatever name called) on lottery tickets to another person who is or has been:

• Stocking lottery tickets.
• Distributing lottery tickets.
• Purchasing lottery tickets.
• Selling lottery tickets.

In essence, this section covers the TDS on the commission or prize earned by agents, distributors, or sellers involved in the lottery ticket business.

TDS Rate and Threshold Limit (Updated)

Updated Threshold Limit: As per the Finance Act, 2025, the threshold limit for TDS deduction under Section 194G has been increased.

• Current Threshold (Effective April 1, 2025): TDS is required only if the aggregate amount of such commission, remuneration, or prize paid or credited to the payee during the financial year **exceeds ₹20,000**.
• **Previous Threshold (Prior to April 1, 2025):** The threshold was ₹15,000.

Updated TDS Rate: The rate of TDS under Section 194G has also been revised.

• Current Rate (Effective October 1, 2024): The TDS rate is **2%**.
• **Previous Rate (Prior to October 1, 2024):** The rate was 5%.
• Higher Rate for Non-PAN: If the payee does not furnish a valid Permanent Account Number (PAN), TDS will be deducted at a higher rate of **20%**, as per Section 206AA, regardless of the usual rate.
• No Surcharge or Health & Education Cess is applicable on this TDS rate.

Time of Tax Deduction

The deductor must deduct TDS under Section 194G at the earliest of the following two events:

• At the time of credit of such income to the account of the payee (receiver).
• At the time of payment of such income in cash, by cheque, draft, or by any other mode.

If the amount is credited to a "suspense account" or any other account in the books of the person liable to make the payment, it is still considered as credited to the payee's account, and the TDS provisions will apply.

Exemptions from TDS under Section 194G

While the section has a broad scope, TDS is not required in the following cases:

• If the aggregate amount of commission, remuneration, or prize paid or credited during the financial year does not exceed the specified threshold of **₹20,000** (effective April 1, 2025).
• Payments made to the Central Government or a State Government.
• Where the payee obtains a certificate from the Assessing Officer (AO) for lower or nil deduction of TDS under Section 197, and submits it to the deductor. For such a certificate to be issued, the payee generally needs to have a valid PAN.

Responsibilities of the Deductor

The person responsible for deducting TDS under Section 194G (e.g., the lottery company, distributor) has several compliance obligations:

• Deduction of Tax: Deduct TDS at the correct rate and at the appropriate time.
• Deposit of Tax: Deposit the deducted TDS to the credit of the Central Government within the prescribed due dates.
  • For tax deducted in March: By April 30 of the immediately following financial year.
  • For tax deducted in any other month: By the 7th day of the next month.
• Filing of TDS Returns: File quarterly TDS returns in Form 26Q within the specified due dates.
• Issuance of TDS Certificates: Provide a TDS certificate in Form 16A to the payee within the stipulated time, detailing the amount of tax deducted and deposited.

Penalties for Non-Compliance: Failure to comply with the provisions of Section 194G (e.g., not deducting TDS, late deduction, late deposit, or non-filing of returns) can lead to penalties, interest, and disallowance of expenses as per the relevant sections of the Income Tax Act.

Taxability for the Payee

The commission, remuneration, or prize received on lottery tickets, even after TDS deduction, remains taxable income in the hands of the payee. The payee must report this income when filing their Income Tax Return (ITR). The TDS deducted can then be claimed as a credit against their final tax liability, preventing double taxation.

Conclusion

Section 194G ensures that income derived from commission, remuneration, or prizes on the sale of lottery tickets is brought under the taxation system through TDS. The recent adjustments to the threshold and rate reflect the government's ongoing effort to fine-tune TDS provisions. Both deductors and payees must be aware of their responsibilities and rights under this section to ensure proper compliance with income tax laws.