Nowadays with increase in craze of digital influencers more and more people or influencers are trying to catch more and more eyeballs so that they get more sponsors or advertisements.
One of the ways in which it is being done is to provide a giveaway to the viewers which you must be seeing a lot nowadays on Youtube.
Let’s understand what is a giveaway?
A giveaway in simple words means asking people to enter a contest where they have to follow a few steps and after which using a random method they will pick a winner and give them some gift which could be a mobile phone, or headphones etc.
Hence, lakhs of people enter into such giveaway to try their luck and win something but do they have to pay any tax on same? Is winning anything on Youtube in a giveaway liable to tax?
If we analyze the modus operandi of a giveaway, do you think it is similar to something? Picking a winner randomly out of thousands and lakhs of entries?
Doesn’t it remind you of lottery where you used to win something if you get a random number. So if we compare it to lotter let’s understand the meaning of lottery under Income tax:
As per section 2(24) of the Income tax act lotter means:
“”lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;”
Hence, this is an inclusive definition and not only restricted to the above items and looking at the above definition we can say that it includes “winnings from prizes awarded to any person by chance” which is the main crux of a giveaway.
Now, many could argue that it is not lottery and it is just a gift by an influencer to it’s subscribers and since gift of movable items are not taxable as was also discussed in our post but that is an argument but when a person runs a giveaway for publicity how would he hide it as a gift.
A gift is not given to a person by drawing a lottery, if that was the case there would have been no lottery.
So now let’s see what are the taxes on such giveaway. Let’s first see what the person announcing Giveaway:
As per section 194B of the Income tax act:
“The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in an amount exceeding ten thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force :
Provided that in a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings.”
Thus, based on the above section the person responsible for paying any person any winning above Rs. 10,000 be it in kind i.e. not money (for eg: giving away mobile phones or beauty products) then in that case that person is liable to deduct tax at source at rates in force i.e. as of now 30% and if price is in kind he needs to collect the amount from winner and then give him the prize.
Thus, legally the influencer or creator conducting the giveaway has to collect and deposit TDS on same.
Penalty for not deducting proper TDS:
If they are unable to do that then legally they could be liable for penalty of upto the amount of TDS u/s 271C of the Income tax Act.
Will this section be applicable to Non resident?
As per the above provisions it says any person and thus it even includes non resident and hence if a non resident give any amount/ prize in India then as per law he has to deduct TDS and then give money.
What about the person winning the giveaway?
Since, TDS must have been already deducted so there won’t be any tax liability as such but if in case there is no deduction of tax then in that case winner will have to pay tax u/s 115BB which is the same section under which a KBC winner or Dream 11 winner would pay tax and the section reads as under:
“Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of—
(i) the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of thirty per cent; and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).”
Thus, according to above section there is a flat 30% tax on above and there is no slab rate benefits etc.
As of now such giveaways and contest have not been on radar of tax authorities and hence not many people are actually following rules but once tax department starts looking at these activities there could be a lot of trouble.
The practice to increase the subscribers could be a bit tiring if governments starts to charge tax on same.
Also, next time if you win a giveaway do calculate the tax first as you might have to first pay 30% tax on same and then get the price so before winning a 1 lakh price calculate if you have 30,000 to pay as tax.
Hence, if you think that your luck is good and you would win the contest then think twice because luck also comes with a Tax.
If you wish to have any tax consultation feel free to book phone consultation with an expert by CLICKING HERE.
Research by Team Taxontips.com and guidance by:
Naman Maloo (C.A., B.Com.)
LinkedIn ID: https://in.linkedin.com/in/naman-maloo-868245146