Casual Income Under Income Tax
Casual income is an important concept in the scope of taxation, often misunderstood due to its irregular and unexpected nature. It represents the revenues that are neither expected nor received from ordinary sources of income. While random income provides financial benefits, taxation requires clarity to ensure compliance with the tax law. This article covers what is casual income under income tax, its definition, legal provisions, and taxation. File your income tax returns with TaxDunia
What Is Casual Income?
Casual income refers to income that is never part of the ordinary, unpredictable and taxpayer’s ordinary earnings. It is characterized by its irregularity and a specific source or lack of frequency. Examples of unintentional income include lottery victory, gifts, prices, gaming revenue and similar windfalls.
Defined characteristics of casual income include:
- Unpredictability: ​​It is not planned or earned through regular efforts.
- Non-recurring Nature: It does not occur often or as part of a regular revenue flow.
- Uncertainty of Source: Sources are often unexpected and not related to professional business or business activities.
Examples of Casual Income
Casual revenue includes different types of revenue, including but not limited to:
- Lottery Winnings: Earnings from the state lottery or private lottery.
- Game Show Prizes: Monetary or Non-Monetary Awards won on a TV or online Game Show.
- Gambling and Betting: Racing, Card Games, Casinos, or other gaming activities.
- Gifts: Monetary or physical gifts are larger than a specified area, and are taken from non-recruited or non-free sources.
- Other Prizes: Prizes or cash received from competitions or contests.
Taxation of Casual Income
Casual profits are taxable under the sub-head “Income from Other Sources” as in step with the Income Tax Act. However, specific guidelines govern its taxation:
1. Flat Rate of Taxation
Casual earnings is commonly taxed at a flat rate of 30% (plus applicable cess and surcharge) no matter the person’s earnings tax slab. This ensures that the taxation of such profits is uniform throughout all taxpayers.
2. No Deductions or Exemptions
No deductions or exemptions underneath Chapter VI-A (which include Section 80C) are allowed on informal income. This manner the complete quantity of informal income is subject to taxation with none comfort.
3. Tax Deducted at Source (TDS)
In many cases, informal earnings are situation to TDS at the time of payment. For instance:
- Lottery winnings or gambling profits regularly have TDS carried out at a flat charge of 30%.
- If TDS isn’t deducted, the recipient is responsible for reporting and paying the tax directly while submitting their tax return.
4. Exemptions for Small Amounts
Income from lotteries, gambling, or having a bet below a sure threshold ( ₹10,000 in India) might not be subject to TDS; however is still taxable and needs to be declared.
Reporting Casual Income in Tax Returns
Casual earnings must be declared within the taxpayer’s earnings tax and go back under the head “Income from Other Sources.” To ensure accurate reporting:
- Maintain Records: Retain documentation, including prize receipts, lottery tickets, or other evidence of earnings.
- Report Gross Amount: Include the overall amount of the informal earnings without lowering it by using any prices incurred to earn it.
- Check TDS Credits: Verify if TDS has been deducted and declare the credit score while submitting returns.
Exemptions from Casual Income Taxation
Gifts from Relatives: The gifts taken from the specified relatives (parents, brothers -in -law, husband or wife, etc.) are not taxable.
Specific Events: Gifts obtained on special occasions, such as weddings, can be excluded.
Awards and Prizes from the Government: Monetary awards received from the government for literary, artistic, or scientific performance may be exempt under specific circumstances.
Get Started with TaxDunia
Casual income, although unexpected and non-recurrent, plays an important role in taxation. The tax rate ensures uniformity, but the absence of cuts or discounts makes it mandatory for taxpayers to plan their obligations. Whether it is a lottery prize, a profit gain, or a great gift, casual revenue requires accurate reporting to avoid punishment and secure compliance with tax laws.
