Author: Oommen Tharian, a student at Symbiosis Law School Pune
To The Point:
Indian Chess Grandmaster, Gukesh Dommaraju, is on the verge of facing an enormous tax liability of around ₹4.5cr on his total winning of $1.35m, breaking it down , $200k for each game won , where he ended up winning three, leaving him with a whopping sum of $600k. The finals where the amount being split by both the finalists were $1.5m, which took his total winnings to a sum of $1.35m , which converted into Indian currency would be around ₹11.34cr. Also having been rewarded another ₹5cr to Gukesh by MK Stalin , the Chief Minister of Tamil Nadu. His case highlights the difference in tax treatment on the rewards given to medalists in Olympics, Commonwealth or Asian Games and the taxation of prize money earned in International events like chess competition. This article looks at the tax implications of Gukesh’s winnings, comparing them with existing tax exemptions under Section 10(17A) and Section 56 of the Income Tax Act, and calls for a change in the tax treatment of sports prize money in India.
Use of Legal Jargon:
The taxation of prize money is primarily governed by the Section 56(2) of the Income Tax Act, 1961. Section 56(2) treats prize money under the head “Income from Other Sources”, and the regular income tax slabs will be fully applicable. On the other hand Section 10 (17A) provides a tax exemption for the reward or the gift from the Government to the athletes who win medals from Olympics , Commonwealth or Asian Games. This exemption highlights the Governments recognition of such athletes’ contribution to national prestige. However, there is no similar tax exemptions for competitions like chess, which is an important contrast in the existing legal framework.
The Proof:
Gukesh Dommaraju’s winning of ₹11.34cr from the World Chess Championship and the additional ₹5cr reward announced by MK Stalin, the present Chief Minister of Tamil Nadu are both subjected to tax liability under Section 56(2) of the Income Tax Act. According to Section 194B and Rule 26 of the Income Tax Act, prize money, winnings or rewards from contest or games, including chess, are classified as income from other sources and taxable at source
Under the new tax regime , Gukesh’s winning of ₹11.34cr is said to be taxable. Amit Baid, Head of Tax at BTG Advaya, suggests that’s under the new tax regime , Gukesh may see a somewhat reduced tax rate of 39%, which amounts to ₹4.5cr , instead of the 42%. In addition to that, the reward announced by MK Stalin is taxable under Section 56(2), which would be treated as “Income from Other Sources”. This amount might also face a similar TDS (Tax Deducted at Source), probably paving the way for another tax liability of around a ₹1.95cr
Case Laws:
There aren’t case laws directly related to Gukesh’s situation, but there has been similar cases in the context of sports , athletes and awards and tax liability
1- Shri Abhinav Bindra v Deputy Commission Of Income Tax (2013):
In this case Shri Abhinav Bindra v Deputy Commission Of Income Tax, the key issues revolved whether the cash awards received by Abhinav Bindra, who was an Olympic Gold medalist in shooting for India, were liable to pay taxes under the Income Tax Act, 1961, or whether he was eligible for exemption under Section 10 (17A).
Abhinav Bindra a highly accomplished athlete, received several awards and cash rewards for his victory. He said that he was an amateur shooter, and therefore in consideration to gifts and rewards , Circular No. 447 would be applicable. There was a clear difference between a professional sportsman and a non-professional sportsman. With regard to the non-professional sportsman , any award or gift he receives will be held not in the nature of income and therefore no tax will be charged. He was learned to be an amateur sportsman and not a professional sportsman, where any reward received would be held to be in the nature or personal interest and will not be liable to tax as it will not be in nature of income. Therefore he was taken out of liability
Conclusion:
The current taxation regime for prize money, particularly the distinction between government and private rewards, raises questions regarding fairness and equity. While athletes who win medals in the Olympics, Asian Games, or the Commonwealth and get rewards from the Government are exempt from tax, people like Gukesh Dommaraju who bring International recognition to India in competitions like chess are not granted the same relief. This difference shows how the Indian Tax structure needs to be changed to give prize money from private or foreign tournaments, tax breaks or preferential treatment. Such a move would motivate Indian athletes but also align India’s tax policies with global best practices in the treatment of prize earnings.
FAQ:
Q1- How is Gukesh Dommaraju’s Prize money taxed?
A1- Gukesh’s prize money of ₹11.34cr from the World Chess Championship is taxed as income from other sources under Section 56(2) of the Income Tax Act, at the applicable income tax rates under the new regime.
Q2- Why is the ₹5cr prize money from MK Stalin also taxable?
A2- The ₹5cr prize money announced by the Chief Minister of Tamil Nadu, MK Stalin, is also taxable under Section 56(2) as Income from Other Sources. This provision applies to any income that is received as prizes.
Q3- Are Government rewards to athletes exempt from tax?
A3- Yes, under Section 10(17A) of the Income Tax Act, rewards and gifts from the Central or State Government to athletes who win medals at Olympics, Asian Games or the Commonwealth Games are exempt from tax
Q4- How can the tax regime for prize money be reformed?
A4- To ensure fairness, the Indian government could extend tax exemptions or preferential tax rates to prize money from international competitions like chess, similar to the exemptions available for government rewards to Olympic and international sports medalists. This would encourage athletes all over India to push forward and work harder to continue representing India globally without the burden of excessive taxation.
