TAX ON PRIZE MONEY (GRANT), Other Topics

[MINU SALILA]

Hi All,

Recently I won a competition and received a grant of 10 Lakhs as prize money. I would like to know how the taxation will be.

The prize was announced in January 2024 and amount got credited in June 2025. So which financial year will be considered for taxation. 2024-2025 ? or 2025-2026?

Also what percentage need to be paid as tax and based on what criteria?

Thanks in Advance.

Posts / Replies

[YAGAY andSUN]

Taxation Treatment of Prize Money Received – ₹10,00,000 Grant

Issue Id: - 120089

With reference to the receipt of ₹10,00,000 as prize money pursuant to a competition, it is pertinent to analyse the income-tax implications under the provisions of the Income-tax Act, 1961 (“the Act”). The following points clarify the treatment under the applicable legal framework:

1. Year of Taxability: Under the general provisions of the Act, income is chargeable to tax in the year in which it is either received or accrued, depending on the method of accounting regularly employed by the assessee. In the case of prize money, unless the assessee follows the mercantile system and the income has accrued with reasonable certainty earlier, the receipt is ordinarily taxed on a cash basis. Given that the prize money has been credited to the assessee’s bank account in June 2025, the income shall be deemed to be received in Financial Year (FY) 2025–26 (Assessment Year 2026–27), and accordingly, the entire amount shall be offered to tax in that year.

2. Head of Income and Taxability: The income in question falls under the ambit of "Income from Other Sources" as defined under Section 56(2)(ib) of the Act, which specifically includes winnings from lotteries, crossword puzzles, races, card games and other games of any sort, or from gambling or betting of any form or nature. The expression “other games” has judicially been interpreted to cover competitions and contests awarding monetary prizes.

Pursuant to Section 115BB of the Act, such income is chargeable to tax at a flat rate of 30% irrespective of the amount of income or the total income of the assessee. In addition, a surcharge (if applicable based on the total income) and Health and Education Cess at 4% shall be levied over and above the basic tax liability. It is pertinent to note that the flat rate under Section 115BB overrides the slab-wise progressive tax rates otherwise applicable to individual taxpayers.

3. Inadmissibility of Deductions or Exemptions:  In accordance with the non obstante clause of Section 58(4) of the Act, no deduction in respect of any expenditure or allowance is permitted against such income. Furthermore, the provisions of Chapter VI-A deductions (including Sections 80C to 80U) shall not be available to reduce the tax liability in respect of such income. Additionally, the basic exemption limit shall not apply for determining the tax on this specific stream of income.

4. TDS Obligations and Credit:  As per Section 194B of the Act, any person responsible for paying income by way of winnings from lotteries or other games exceeding ₹10,000 is required to deduct tax at source at the rate of 30% at the time of payment. The assessee is advised to verify whether tax has been deducted at source by the payer and to obtain the relevant TDS certificate (Form 16A). The amount of tax so deducted, if any, shall be available as a credit against the final tax liability while filing the return of income for AY 2026–27.

5. Compliance and Payment of Tax:  In the event that no TDS has been deducted or if the deducted amount is insufficient to cover the entire liability, the assessee is liable to discharge the tax obligation either by way of advance tax under Section 208 or, alternatively, through self-assessment tax before filing the income-tax return. Failure to do so may attract interest under Sections 234B and 234C of the Act.

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[MINU SALILA]

Thank you for the response. The amount received is not part of any game or lottery. It is for presenting a business idea to a panel and given as a grant to start the business. Same applies in this case too?

[YAGAY andSUN]

Legal Analysis on the Taxability of a Grant Received in the Nature of Prize Money

The assessee has received a sum of ₹10,00,000 in June 2025 pursuant to a competition held for presentation of a business idea. The amount was awarded as a grant with the stated objective of enabling the recipient to initiate or develop a proposed business venture. It is submitted that the amount in question is not in the nature of winnings from any game, lottery, betting, or gambling activity and therefore falls outside the purview of Section 115BB read with Section 56(2)(ib) of the Income-tax Act, 1961 (“the Act”).

As per Section 4 read with Section 5 of the Act, income is chargeable to tax in the year in which it is either received or accrued, subject to the method of accounting regularly employed by the assessee. In the present case, the assessee follows the cash system of accounting, and the amount was credited to the assessee’s bank account in June 2025. Accordingly, the said receipt shall be taxable in the hands of the assessee in the Financial Year 2025–26, corresponding to Assessment Year 2026–27.

On the question of classification of the receipt, it is pertinent to distinguish between capital receipts and revenue receipts. Grants received with the primary intention to assist in setting up or augmenting a business — and not in lieu of any service rendered or recurring support — are generally regarded as capital receipts. If the amount has been awarded with the dominant purpose of providing capital assistance towards establishment of a new business venture, such receipt may be classified as a capital receipt. Under prevailing jurisprudence and statutory provisions, capital receipts are not chargeable to tax unless specifically included within the scope of income under Section 2(24) of the Act.

However, in the alternative scenario where the grant is in the nature of revenue assistance, particularly if it is intended to subsidise business operations or working capital requirements, the receipt may be taxable under the head “Profits and Gains from Business or Profession” in accordance with Section 28 of the Act. In such case, it shall be open to the assessee to claim deductions in respect of any legitimate business expenditures incurred, and the net income shall be taxable at the applicable slab rates.

It is further clarified that since the amount is not in the nature of income falling under Section 56(2)(ib), the provisions of Section 115BB prescribing a flat tax rate of 30% shall not apply. Consequently, the income shall be subject to tax at the regular rates applicable to the assessee, and the benefit of basic exemption limit and deductions under Chapter VI-A of the Act (e.g., Sections 80C to 80U) shall be available, provided other conditions are satisfied.

The assessee is advised to ascertain whether tax has been deducted at source under any provision such as Section 194J or Section 194C, depending upon the nature of payment, and to ensure proper credit of such tax deducted at source (TDS) in Form 26AS. In the event of non-deduction or short deduction of TDS, the assessee shall remain liable to discharge the residual tax liability through advance tax payments or at the time of self-assessment under Section 139.

In conclusion, based on the facts presented, the sum of ₹10,00,000 received in June 2025 shall be taxable in AY 2026–27, and the appropriate head of income and rate of tax shall depend upon the nature and purpose of the grant. If classified as a capital receipt not chargeable under Section 2(24), no tax shall be leviable. If treated as business income, the receipt shall be taxable under the head “PGBP” at normal rates, with corresponding allowances for business-related deductions.

Recommended Action

1. Get documentation (grant letter, competition details, award purpose)
2. Check if TDS was deducted, and under which section
3. Use the funds appropriately (business setup, assets)
4. Maintain proper records of usage if it's claimed as business income
5. Consult a CA to help classify it properly (especially if you intend to register a startup or claim any exemptions)

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[MINU SALILA]

Thanks a lot for explaining.