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Casual income meaning in income tax

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What do you understand by Casual Income? How are they treated under the Income Tax Act?




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    1. Anonymous

      Casual Income refers to any income that is not earned on a regular basis and does not arise from any specific profession, vocation, business, or occupation. This type of income is typically unexpected and non-recurring in nature. Examples of casual income include winnings from lotteries, crossword puzzles, horse races, card games, and other games of any sort involving gambling or betting.

      Treatment of Casual Income under the Income Tax Act (India)

      Under the Indian Income Tax Act, the treatment of casual income is as follows:

      1. Taxability:
        • Casual income is fully taxable under the head “Income from Other Sources.”
        • There is no exemption threshold; the entire amount of casual income is subject to tax.
      2. Tax Rate:
        • Casual income is taxed at a special rate of 30% (plus applicable surcharge and cess).
        • This tax rate is applied irrespective of the income slab of the individual. Therefore, the marginal tax rate does not apply to casual income.
      3. No Deduction Allowed:
        • No deductions under Chapter VI-A (such as deductions for investments under Section 80C, 80D, etc.) are allowed against casual income.
        • No expenses or allowances can be claimed against such income.
      4. Examples of Casual Income:
        • Lotteries: Winning from lotteries, whether from government-approved lotteries or private lotteries.
        • Crossword Puzzles: Prizes from solving crossword puzzles.
        • Horse Races: Winnings from betting on horse races.
        • Card Games and Other Gambling: Prizes from card games or any other gambling or betting activities.

      Section 115BB of the Income Tax Act

      Section 115BB of the Income Tax Act, 1961, specifically deals with the taxation of casual income. According to this section:

      • The income tax payable shall be calculated at the rate of 30% on the total amount of winnings from lotteries, crossword puzzles, races including horse races, card games, and other games of any sort, or from gambling or betting of any form or nature.
      • No deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of the Act in computing the income referred to in this section.

      Example Calculation

      Assume an individual wins ₹1,00,000 from a lottery. The tax calculation would be as follows:

      • Tax on Casual Income: ₹1,00,000 × 30% = ₹30,000
      • Surcharge: Applicable as per income level (if any)
      • Health and Education Cess: 4% of tax (30,000 × 4% = ₹1,200)

      Total Tax Payable: ₹30,000 + ₹1,200 = ₹31,200

      Summary

      Casual income is a type of non-recurring, unexpected income that is fully taxable under the Income Tax Act at a flat rate of 30%, with no deductions allowed for any expenses or allowances. This ensures that individuals cannot reduce their taxable casual income through deductions that are available for other types of income.

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