Casual Income in Income Tax: Meaning, Tax Rate, Examples and How to Declare?

Income can come from multiple sources, and while most of us are familiar with salaries, business profits or rental income, there’s another category worth knowing about – casual income. 

This refers to money received occasionally or unexpectedly, and it is often overlooked while filing tax returns. However, the Income Tax Act has clear provisions about such income, including how it is taxed and reported.In this blog, we will break down everything you need to know about casual income – its meaning, applicable tax rates, common examples, and how to declare it in your income tax return.

What Is Casual Income?

Casual income refers to earnings that are non-recurring, unexpected or irregular. It is typically income that does not arise from any profession, business or regular employment. The Central Board of Direct Taxes (CBDT) defines it as income that occurs by:

• Sporadic: It is not part of your regular income stream. 
• Unforeseen: No future commitments or recurrence. 
• No deductions: You can not deduct any expenses(e.g., lottery ticket cost) from this income. 

In simple terms, if you receive a one-time cash prize, lottery win or similar windfall, it is classified as casual income.

What is the Casual Income Tax Rate?

Casual income is taxed under the head “Income from Other Sources” and falls under Section 115BB of the Income Tax Act, which mandates: 

• A flat tax rate of 30%
• Plus surcharge and health and education cess, making the effective rate around 31.2%. 
• TDS below:
  • Section 194B: lotteries, puzzles (₹10,000+), 31.2% TDS. 
  • Section 194BB: sports betting wins (₹10,000+).
  • Section 194BA: online gaming(no threshold)

What is an Example of Casual Income Tax?

Common examples include: 

• Lottery jackpots
• Quiz‑show prizes
• Poker or card game winnings
• Sports betting or fantasy gaming
• Crossword or puzzle rewards 

Situation 1

You win ₹1,00,000 in a lottery. TDS of ₹31,200 is already deducted, and the net ₹68,800 is credited to you. 

Situation 2

You win ₹20,000 in cash plus a car valued at ₹80,000 in a puzzle competition. The distributor deducts 31.2% tax on the full ₹1,00,000(“cash + car value”) and pays the rest. 

What is the Section for Casual Income Tax?

The primary section is Section 115BB of the Income Tax Act, 1961. It covers:

• Lottery Jackpots
• Quiz Shows
• Poker Games
• Sports Betting
• Crossword or Puzzle-Solving

Casual income is taxed at a flat rate of 30% under Section 115BB, with applicable surcharge and cess, taking the total tax liability to 31.20%. No deductions for expenses are allowed, and the basic exemption limit does not apply to such income.

Additionally, if your casual income exceeds ₹10,000, the payer is required to deduct TDS at source. This deduction is made under Section 194B for income from lotteries, crossword puzzles, and similar winnings, or under Section 194BB for winnings from horse races.

Which Income is Not Considered Casual Income?

Income that does not fall under casual income includes

• Capital gains(e.g., sale of shares/assets taxed under Section 45)
• Earnings from a business, profession or occupation. 
• Salary components like bonuses, gratuities and perquisites. 

How to Declare Casual Income in ITR

Even if TDS has already been deducted, you must declare casual income in your Income Tax Return(ITR). Here’s how: 

1. ITR Form: Use ITR-1 or ITR-2, depending on your total income sources. 
2. Head of Income: Report under “Income from Other Sources.”
3. TDS Credit: Claim the TDS deducted(reflected in Form 26AS) in the respective column while filing.
4. Tax Paid vs. Tax Payable: If tax has been overpaid(due to slab differences or lack of surcharge), you may be eligible for a refund.

Important Points to Remember

• Key documentation: Always maintain proof of income receipts, TDS certificates and contest/prize details. 
• Declare all winnings: Even small prizes, if cumulatively significant, must be reported. 
• Watch for e-sports and fantasy gaming: With the rise in online gaming platforms, earnings from such apps also fall under casual income unless you’re a professional gamer.
• Mismatch with 26AS: Always cross-check your Form 26AS for any TDS on winnings to avoid tax notices.

Conclusion

Although occasional and exciting, casual income comes with tax implications that should not be ignored. Whether it is a game show prize or an unexpected lottery win, the government expects its share, at a flat rate of 30%. 

By understanding how casual income is taxed and ensuring proper reporting in your ITR, you can avoid unnecessary legal issues and maintain compliance with tax laws.Always consult a tax advisor if you have multiple sources of irregular income or significant winnings, to ensure you file accurately and efficiently.