“...aur fir hum Gold jeetega, aur humara Jhanda lehrayega”
- we couldn’t have found a better time to recall this dialogue from a famous bollywood movie.
It’s a historic Olympic Gold for India! A proud son of the motherland, Javelin ace Neeraj Chopra, puts an end to India’s century-long thirst for Athletics Olympics Gold! A centenary celebration, in the true sense of the word.
Not to forget, this year India’s medal tally reached 7, the nation’s highest ever in any Olympics! All thanks to our star athletes.
Although their efforts are in no way measurable in monetary terms, many authorities have come up with awards as a token of appreciation for the athletes. If you were to do a back-of-the-envelope calculation, awards for Mr. Chopra would be north of Rs 14 Crores as of now. Include awards to other winners & you’d arrive at some 40 crore rupees.
But then, the question pops up… Do these players have to pay taxes on awards? If Yes, how much? Well, let’s decode.
Income Tax on Awards in India
Income Tax is fiddly. If you were to find an answer to whether awards are taxable or not, you’d have to skim across numerous sections, sub-sections, clauses, sub-clauses, provisions, amendments, and whatnot. But don’t worry, we have done the homework on your behalf and present a simplified answer to the question before you.
Income Tax on awards depends upon a number of factors in India; precisely -
- Award received from whom?
- Award received for what purpose?
- Award approved by the Government or not?
Let’s find out how it’s decided.
When is the award taxable?
Awards received from any authority not approved by the Government, or in any game show or entertainment program, etc, are taxable. For e.g., ICC Cricket awards, Grammy awards, awards received in reality shows like KBC, Indian Idol, etc will be taxable.
According to Section 56(2) of the Income Tax Act, these are taxable under the head ‘Income from other sources’.
In the case of cash awards, tax at a flat rate of 30% is payable (plus cess), irrespective of the income slab. If the income is more than 10000, the recipient shall receive the award after deduction of TDS @ 30%. If the award is in kind, tax at the same rate is calculated on the market value of the award.
When is the award tax-free?
Awards given in public interest by the Central or State Government or any other body after approval from the Government are tax-free. For e.g., prizes given to the winners of the Olympics, Asian Games or Commonwealth Games, etc.
According to Section 10(17A) of the Income Tax Act, these are tax-free.
For instance, the Bharat Ratna award received by Sachin Tendulkar from the Government of India is tax-free. In contrast, the ‘Wisden Cricketer’ award received by him from an overseas organization is taxable.
But, that’s not all. While, at first instance, awards to Olympic athletes are tax-free, there is more to the story than you know.
The Golden Boy’s friction with the Taxman
The year was 2006. India registered its first Gold in Shooting at the World Championships. The same shooter would go on to earn a Gold in the Beijing Olympics two years later. Already honored with the Arjuna award, the Rajiv Gandhi Khel Ratna award, and the Padma Bhushan (later on), he became the first Indian to have held both the World and Olympic titles! The name is Abhinav Bindra.
Post his celebrated Olympics Gold, he was awarded with more than Rs 3 Crores by various authorities. On his arrival at the motherland, the taxman knocked on his doors. They were of the opinion that since these awards were income for Mr. Bindra, he was liable to pay taxes on those.
Mr. Bindra contended that since shooting wasn’t a professional sport per se, he was not a professional sportsperson, and hence was not liable to pay taxes on those gifts (as per circular number 447). But the tax authorities claimed that with the imposition of taxes on gifts, circular number 447 was not valid, and Mr. Bindra has to pay the taxes.
Think about this... even if the circular had been valid (which the Tribunal did not contradict), don’t you feel that with the kind of training and achievements that Mr. Bindra had, he was actually a professional sportsperson? Well, make of it what you will.
Anyway, Mr. Bindra also claimed that most of the awards were received from the Government-approved authorities, and hence, were not taxable. He was right at this point. But then, the tax authorities had something else to say...
Is Award an Income?
Well, first thing first, what’s an income? An income is some consideration for doing or abstaining from doing something. And what's an award, you ask?
An award is usually a unilateral contribution and is granted solely out of the willingness of the person giving it. This is not a pre-agreed sum of money in return for doing or not doing something (unlike gambling & game shows, etc). Hence, an award is not an income; rather, it’s a ‘Capital Receipt’.
Capital Receipt is not covered under the purview of the income tax regulations of India. That’s why it’s neither taxable nor tax-free. An award, basically, is not an income at all.
Long story short, Mr. Bindra did not have to pay tax on the awards he received.
Does that mean no taxes this time?
Apparently, only the gifts awarded by Central or State governments and other Government-approved authorities to the winners will be tax-free. But not the others.
For instance, on the SUV gifted by Anand Mahindra to Neeraj Chopra, he’ll have to cough up 30% as tax (unless Mr. Mahindra is generous enough to take the haircut himself). Also, the awards given to the Women’s hockey team, even if offered by the government authorities, are taxable (because they weren’t winners)... ridiculous though!
The Bottom Line
India has a lot more potential than the world sees! It’s just that we sometimes lack the right kind of motivation (it's not always because of the lack of resources). We need to give the push that Indian sports so badly need. And this can come from taking efforts into account, and not just recognizing winners.
Mr. Bindra, who could not qualify for the 2000 Olympics & could not get a medal in 2004, went on to fetch a Gold in the next Olympics! So, you never know.
Anyway, should these awards be taxed? Also, what, do you think, can go a long way in strengthening India’s position in world sports? Tell us in the comments.