Tax Laws and Practice · Income from Other Sources

Dividend Income and Winnings from Lotteries and Games

Updated 11 October 2026 · Fact-checked

Dividend and winnings from lotteries, crossword puzzles, races, card games and betting are both taxed under Income from other sources (section 92(2)). Dividend is taxed at normal rates, with limited deductions. Winnings are taxed at a flat special rate with no deduction for any expense (section 94(4)). Deemed dividend is treated as dividend by law.

Understand Dividend Income and Winnings from Lotteries and Games

Section 92(1) of the Income-tax Act, 2025 is a residuary charge. Income that is not exempt and not taxable under the other heads falls under Income from other sources. Section 92(2) then names specific items. Two of them are dividend (clause a) and winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort, or gambling or betting (clause b).

Dividend is a share of company profit paid to shareholders. In the shareholder's hands it is taxable as income under this head. Sections 92 and 94 deal only with chargeability and deductions. The tax rate and the TDS rules sit in other provisions of the Act, so take them from your study material for tax year 2026-27 and do not quote them from section 92 or 94.

Deductions against dividend. Section 94 is written as a restriction on section 93, the deduction provision for this head. Section 94(1) says these are not deductible: personal expenses of the assessee; interest payable outside India on which tax has not been paid or deducted under Chapter XIX-B; and salary payable outside India unless tax has been paid or deducted under that Chapter. Section 94(2) applies sections 29, 35(b)(i) and 36 to this head as they apply to business income. Do not assume a fixed percentage cap or a fixed list of allowed items. Allow only what the question or the Act supports.

Deemed dividend is a payment that is not called a dividend but is treated as one, because the company is passing out its accumulated profits to shareholders in disguise. The rules sit in the Act's definition of dividend. The section number is not in the text supplied for this page, so check it in your study material. Typical cases are: a distribution of debentures or deposit certificates to shareholders out of accumulated profits; a distribution on liquidation out of accumulated profits; a distribution on reduction of capital out of accumulated profits; and a loan or advance to a shareholder holding at least 10% of the voting power. For a loan, the shareholder must also be the beneficial owner of the shares, not just the registered holder. The deemed dividend is capped at the company's accumulated profits. Loans made in the ordinary course of a money-lending business are not caught.

Winnings are taxed very differently from dividend. They carry a special flat rate, not the slab rates. Take the rate and the TDS rule from the rate and TDS provisions in your study material. Section 94(4) says no deduction for any expenditure or allowance related to such income is allowed. So the cost of the lottery ticket or the entry fee is ignored. Section 92(5)(b) widens card games and other games to include game shows and television or electronic entertainment programmes where people compete for prizes. Section 92(5)(e) widens lottery to prizes awarded by draw of lots, by chance, or in any other manner under any scheme.

There is one exception. Section 94(5) says the no-deduction rule does not apply to a person who owns and maintains horses for running in horse races, in computing income from that activity. Section 94(6) defines horse race as a race on which wagering or betting may be lawfully made.

Key rules to remember

Charge of dividend: Dividend → Income from other sources [section 92(2)(a)]; Taxed at the recipient's applicable rates. Dividend is taxed under this head, not as business income, unless the law says otherwise.
Charge of winnings: Winnings from lotteries, crossword puzzles, races, card games, games of any sort, gambling or betting → Income from other sources [section 92(2)(b)]; Taxed at a special flat rate, not slab rates. The rate is not in sections 92 or 94, so take it from your study material for the year.
No deduction against winnings: Taxable winnings = Gross winnings (no expenditure or allowance deducted) [section 94(4)]; Ticket cost, entry fee and travel are all ignored. The only exception is the owner of racehorses for that activity [section 94(5)].
Limits on deductions against dividend: Not deductible: personal expenses [94(1)(a)]; certain interest or salary payable outside India without tax paid or deducted under Chapter XIX-B [94(1)(b), (c)]. Sections 29, 35(b)(i) and 36 apply as for business income [94(2)]; Section 94 restricts section 93. Do not use a fixed percentage cap on interest unless the question or your study material gives one.
Deemed dividend on loan to shareholder: Deemed dividend = Loan or advance, limited to accumulated profits; Applies where the shareholder holds at least 10% of the voting power and is also the beneficial owner of the shares. Accumulated profits are those on the date of the loan.
Net taxable dividend: Taxable dividend = Gross dividend − deductions allowed under section 93 (after the section 94 restrictions); Strike out personal expenses first. Then deduct only the expenses the question treats as allowable.

How to solve Dividend Income and Winnings from Lotteries and Games questions

Use this order for any question on dividend or winnings. It keeps your answer in the ICSI style: provision, application, conclusion.

1Identify the receipt. Is it dividend, deemed dividend, or winnings from a lottery, game, race, gambling or betting?
2State the head of income: Income from other sources, citing section 92(2)(a) for dividend or 92(2)(b) for winnings.
3For payments that look like loans or distributions, test the deemed dividend conditions: type of payment, shareholder's voting power (at least 10% for loans), beneficial ownership of the shares, and accumulated profits of the company.
4For deemed dividend, take the lower of the payment and the accumulated profits. Do not exceed accumulated profits.
5For dividend, list the expenses claimed. Reject personal expenses and the foreign payments barred by section 94(1). Allow the rest only if the question treats them as allowable under section 93, read with section 94(2).
6For winnings, take the gross amount. Allow no deduction, citing section 94(4). Check whether the person is a racehorse owner under section 94(5).
7Apply the correct rate from your study material: the applicable rates for dividend, the special flat rate for winnings. Mention TDS if asked.
8Write a one-line conclusion giving the taxable amount and the tax.

Quickest way: Three-question shortcut

When to use it: Use it for short-answer and 5 to 6 mark questions when time is tight.

Ask: Is it winnings? If yes, take the full amount, allow no deduction, write 'section 94(4)', and apply the special flat rate.
Ask: Is it a loan or advance from a company to a shareholder? If yes, check 10% voting power and beneficial ownership, then take the lower of the loan and accumulated profits as deemed dividend.
Ask: Is it genuine dividend? If yes, strike out personal expenses under section 94(1)(a), deduct only the expenses allowed, and tax the rest at the applicable rates.

Common mistakes in Dividend Income and Winnings from Lotteries and Games

Deducting the cost of the lottery ticket or entry fee from winnings.
Students treat winnings like business income, where costs are allowed.
Fix: Remember section 94(4): no deduction of any expenditure or allowance against winnings. Tax the gross amount.
Treating the full loan to a shareholder as deemed dividend.
Students forget the cap linked to accumulated profits.
Fix: Deemed dividend is the lower of the loan and the company's accumulated profits on the date of the loan.
Applying deemed dividend to a shareholder with less than 10% of voting power, or one who is not the beneficial owner.
Students remember 'loan to shareholder' but forget the voting-power and beneficial-ownership tests.
Fix: Check the 10% voting power condition and beneficial ownership first. Also check whether the loan is in the ordinary course of a money-lending business, which is outside the rule.
Deducting personal expenses, or inventing a percentage cap, against dividend.
Students think any expense connected with the shares is deductible, or recall a cap from memory.
Fix: Section 94(1)(a) bars personal expenses. Section 94(2) applies sections 29, 35(b)(i) and 36 as for business income. Allow only what the question and the Act support, and do not apply a fixed cap.
Taxing winnings at slab rates.
Students apply the general rate table to every income under Income from other sources.
Fix: Winnings have a special flat rate. Keep a separate line for them in the computation.
Forgetting that game shows and online or electronic games are covered.
Students read 'lottery' narrowly.
Fix: Section 92(5)(b) includes game shows and entertainment programmes where people compete for prizes. Section 92(5)(e) widens lottery to draws and chance schemes.

Worked examples

Example 1

Mr Anil Kumar, a resident individual, received dividend of ₹2,00,000 from an Indian company. He paid ₹2,000 to a bank as commission for collecting the dividend. Assume the commission is allowable under section 93. He also spent ₹15,000 on personal expenses during the year. Compute his income from the dividend.

Show the solution

Dividend is chargeable under Income from other sources: section 92(2)(a).
Gross dividend = ₹2,00,000.
Personal expenses of ₹15,000 are not deductible: section 94(1)(a).
Commission for collecting the dividend = ₹2,000, allowed as the question states.
Taxable dividend = ₹2,00,000 − ₹2,000 = ₹1,98,000.

Answer: Income from dividend is ₹1,98,000. It is added to his other income and taxed at the applicable rates.

Example 2

Ms Meera, a resident individual, won ₹5,00,000 in a lottery. She had spent ₹20,000 on buying tickets. A company, XYZ Ltd, also gave a loan of ₹12,00,000 to Mr Rao, who holds 12% of the voting power and is the beneficial owner of those shares. The accumulated profits of XYZ Ltd on that date were ₹8,00,000. (a) Compute Meera's taxable winnings. (b) Find the deemed dividend in Rao's hands.

Show the solution

Part (a): winnings from a lottery are chargeable under Income from other sources: section 92(2)(b).
Section 94(4) bars any deduction for expenditure related to the winnings, so the ₹20,000 spent on tickets is ignored.
Taxable winnings = ₹5,00,000. Tax is then charged at the special flat rate given in the Act for such winnings.
Part (b): Rao holds 12% of voting power, which is at least 10%, and he is the beneficial owner of the shares. The loan is not in a money-lending business, so the deemed dividend rule applies.
Deemed dividend = lower of loan ₹12,00,000 and accumulated profits ₹8,00,000 = ₹8,00,000.

Answer: (a) Taxable winnings are ₹5,00,000, with no deduction for the ticket cost. Tax is at the special flat rate. (b) Deemed dividend in Rao's hands is ₹8,00,000.

Exam tips

Always cite section 92(2)(a) or 92(2)(b) in the first line. ICSI markers look for the provision before the working.
Quote section 94(4) by number when you deny a deduction against winnings. Mention the racehorse-owner exception in section 94(5) if the question gives horses.
In deemed dividend problems, write the three tests in order: type of payment, 10% voting power, accumulated profits. Marks are given for each test.
Set out a short working table: gross amount, deductions, taxable amount, tax. Keep winnings on a separate line from other income.
Use the Income-tax Act, 2025 sections only. Do not cite the 1961 Act for June 2027 answers.

Practice questions from Income from Other Sources

Dividend Income and Winnings from Lotteries and Games in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Dividend Income and Winnings from Lotteries and Games: frequently asked questions

Under which head is dividend income taxed under the Income-tax Act, 2025?

Dividend is taxed under Income from other sources. Section 92(2)(a) names it specifically. The recipient pays tax on it at the rates that apply to them.

What is deemed dividend, with an example?

Deemed dividend is a payment by a company that is treated as dividend because it passes out accumulated profits. An example is a loan to a shareholder holding at least 10% of the voting power who is also the beneficial owner of the shares. The deemed dividend is limited to the company's accumulated profits. Check the section number of the definition of dividend in your study material.

What is the tax rate on winnings from lottery and games?

Winnings from lotteries, crossword puzzles, races, card games, games and betting are taxed at a special flat rate, not slab rates. Sections 92 and 94 do not give the rate, so take it and the TDS rule from your study material for the year. No expenditure can be deducted against the winnings under section 94(4).

Can I deduct expenses against lottery winnings?

No. Section 94(4) says no deduction for any expenditure or allowance related to such income is allowed. The only exception under section 94(5) is for the owner of racehorses, for income from owning and maintaining them.

Are game show prizes and online game winnings covered?

Yes. Section 92(5)(b) includes game shows and television or electronic entertainment programmes where people compete to win prizes within card games and other games. Such winnings fall under section 92(2)(b).