Indian Railways, Bharat Petroleum and Indian Olympic Association have also chipped in with cash prizes for them. The question now is: how much will they have to pay in taxes?
To know the answer, let's revisit the case of Abhinav Bindra, who won gold at the Beijing Olympics in 2008. Bindra received Rs 4.81 crore in cash. The Income Tax Department demanded tax from him under Section 56(2)(v) of the Income Tax Act.
Bindra appealed to the Income Tax Appellate Tribunal (ITAT), arguing that the amount should not be taxed in view of Circular 447 issued by CBDT, which says only income received by a professional sportsperson shall be taxable, clearly implying a non-professional sportsperson is not liable to pay any tax. The ITAT ruled in Bindra's favour. It held that no tax is required to be paid since he's an amateur shooter and sum received by him is not in the nature of income.
A similar view was taken in the case of cricketers Kapil Dev and G.R. Viswanath. Now what distinguishes a professional from an amateur sportsman? Since the I-T Act does not define a "professional", whether a sportsman is a professional or a non-professional is decided based on facts and circumstances of each case. Further, awards and prizes received from any government or on its behalf are exempt under Section 10(17A) and from local authorities or trusts and funds are not taxable as per Section 56(2)(vii). Also, there is no special tax that covers such rewards. It can be safely assumed that an amateur sportsperson or a non-professional sportsperson actually gets all the sum of the prize as there's no tax payable on it.
(Courtesy: Tax2win)