Casual Income In Income Tax

What is casual income [Section 56(2)(ib)]

Casual income refers to earnings characterized by their spontaneous and unpredictable nature.

Characteristics of Casual Income

• Incidental
• Accidental
• Arises unexpectedly
• Not part of a planned or regular source
• Cannot rely on it’s consistency

Casual income means income in the nature of / Example of Casual Income

• Winning from lotteries,
• Crossword puzzles,
• Races including horse races,
• Card games and other games of any sort,
• Gambling/ betting, etc.

Casual income does not include :

• Capital gains, chargeable under the provisions of section 45; or
• Receipts arising from business or the exercise of a profession or occupation; or
• Receipts, by way of addition to remuneration of an employee, such as bonus, gratuity, perquisites, etc.

Casual and Non-recurring Income

Casual Income: These are the incomes about which the taxpayer remains uncertain before it is received such as example Income from a lottery, crossword competition, betting etc.

Non-recurring Income: These are the incomes that arise at an irregular interval. example gain on sale of assets, insurance claim.

Gift V/s Casual Income

Receipts which are of a casual and non-recurring nature will be liable to income-tax only if they can properly be characterised as "income" either in its general connotation or within the extended meaning given to the term by the Income-tax Act. Hence, gifts of a purely personal nature will not be chargeable to income-tax except when they can be regarded as an addition to the salary or when they arise from the exercise of a profession or vocation.
Circular : No. 158 [F. No. 173/2/73-IT(A-I)], dated 27-12-1974.

Tax Rate

Chargeable to tax at a flat rate of 30% under section 115BB

Other Point

• No expenditure is allowed as a deduction from casual income.
• The benefit of basic exemption limit is not available in respect of casual income.
• Deduction under Chapter VI-A is not allowable from such income.

Procedure of grossing up

In the case of resident individual or HUF, are as follows

• Lottery Income Received = Gross Lottery Income – TDS @ 30% on Gross Lottery Income.
• Lottery Income Received = 70% of Gross Lottery Income
• Gross Lottery Income = Lottery Income Received / 70%
• Note: Tax is not deducted in the following cases, hence, there is no need for grossing up.
  • If the amount of winning from the lottery etc. or horse race is not more than Rs.10,000.
  • In case of winning from racing other than horse race e.g. camel races, etc.

General

Winning from a motor car rally: Winning from a motor car rally is a return for skill and effort and cannot be treated as casual income but taxable as normal income

Lottery held as stock in trade: Winning from lottery to an agent or trader out of its unsold stock (tickets) shall be treated as incidental to the business and taxed under the head “Profits & gains of business or profession”

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