Tax will be deducted at source on any prize wins whether in crypto or INR.
Crypto tax is a hotly debated topic for the past one month.
As we are still debating the new tax regime for crypto, there is a new tax lurking in the corner and WazirX is maybe the first one to implement it. It is the tax on Prizes and Winnings.
A point to observe is that it is not a new law. It has been in existence for several years now.
What the Law Says?
The Section 194 B of the Income Tax Act 1961 states:
“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.”
Under this law, a 30% Tax is Deducted at Source on prize wins whether they are in INR or crypto.
WazirX Has Begun Implementation of This Law
Now crypto exchange WazirX is also enforcing this rule. The prize you get in a trading contest falls under the ambit of this law.
It means that in any trading contest, if you win more than INR 10,000 worth of crypto, WazirX will deduct 30% of it before paying you.
Let’s say you win INR 100,000 worth crypto. WazirX will pay you INR 70,000 worth crypto and pay INR 30,000 to the Income Tax department under your PAN card.
You will be able to see this tax paid to the Tax Department in your Form 26AS.
The catch here is that you can’t claim this money back.
Till now, people were able to get away with this tax by simply booking the prize money as profit or not cashing out and hence not paying tax on it in the given financial year.
However, now it cannot be done.
You cannot even claim this tax back or set it off against any losses made in crypto trading. Further, the tax on prize money cannot be offset with the loss in trading or business.
The prize money you win also has to be declared in the Income Tax Return (ITR) form. The amount you received as a prize should be mentioned under the “Winning from lottery and prizes” section.
Accounting of the Prize
To simplify accounting, it is recommended to convert the crypto you get in prize into INR as if the value of the crypto reduces, you will not be able to claim any losses.
If you still want to buy the same crypto asset, you can buy it again from the INR (you just converted as mentioned above) and treat it as an investment.
Crypto tax is still quite ambiguous in India. It is expected to be simplified during the next phase of budget session.
Disclaimer – Readers are advised to consult a Chartered Accountant to discuss their specific cases. The information in the article is for general information purposes only.
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