How Gukesh’s Prize Money is Taxed & Why the Government Provides Tax Relief for Athletes

Updated on: Dec 16th, 2024| 3 min read

Introduction

Indian chess grandmaster, Gukesh D is one of the youngest and most talented chess players in the world. As he continues to achieve success, winning prestigious titles and competitions, the question arises: how is the prize money won by such athletes or professionals taxed in India? In the case of Gukesh’s prize money, it’s essential to understand both the taxability of such earnings and the exemptions or reliefs that the government may offer under specific circumstances.

Taxability of Prize Money in India

In India, the Income Tax Act, 1961, lays down the rules governing the taxation of income from various sources, including prize money. According to Indian tax laws, prize money won in competitions like chess tournaments is classified as income from other sources under Section 56 of the Income Tax Act.

What is Taxable?

Prize Money as Income: Prize money earned by an individual is considered as taxable income under the head “Income from Other Sources”. This means that Gukesh’s prize winnings would be added to his total annual income and taxed according to the applicable income tax slab rates.
Section 56 of the Income Tax Act:
- Under this section, the prize money or rewards received in cash or in kind by a player is treated as income.
- The tax is calculated based on the total income of the individual, including prize money.
Rate of Tax:
- The taxable amount will be included in Gukesh’s overall income. If his total income crosses the tax-free threshold (currently ₹2.5 lakh for individuals below 60), the income will be taxed according to the progressive tax rates applicable.
- For example:
  - Income up to ₹2.5 lakh: No tax.
  - Income between ₹2.5 lakh and ₹5 lakh: 5% tax.
  - Income between ₹5 lakh and ₹10 lakh: 20% tax.
  - Income above ₹10 lakh: 30% tax.

Special Tax Considerations for Prize Money

Tax on Cash Prizes vs. Non-Cash Prizes

Cash prizes are taxable based on the amount received.
Non-cash prizes (e.g., a car or property) are valued at their market price, and the equivalent value is taxed.

Tax Deducted at Source (TDS)

The tournament organizers or sponsors may be required to deduct Tax Deducted at Source (TDS) on the prize money before it is paid to the winner.
The rate of TDS on prizes exceeding ₹10,000 is typically 30%. This means if Gukesh wins a large sum, a portion of the prize may be withheld by the organizers for tax purposes.

Exemption on Some Prizes

Sports-related prizes: Under certain conditions, sports-related prizes awarded by the Central or State Government or recognized sports bodies are exempt from tax.
If the prize is won in a competition recognized by the government, there may be partial or full exemption, depending on the nature of the competition and its relevance to public interest.

Why the Government Provides Tax Relief for Prize Money

While the government taxes prize money under normal circumstances, there are specific provisions in place that provide tax relief to sports professionals like Gukesh. The aim is to encourage sports and recognize achievements that bring prestige to the country.

1. Tax Exemption on Government Awards

Sports Awards: The Indian government offers various awards for outstanding sports performances, such as the Padma awards, Arjuna Awards, and Khel Ratna. Prize money won as part of such awards is often exempt from income tax to honor the individual’s contribution to national pride and recognition.
Recognition of Hard Work: For athletes like Gukesh, who represent India globally, there is an understanding that their winnings should not be diminished by excessive taxation. This is especially true if the prize money results from official or government-recognized competitions.

2. Encouragement for Sports Development

Promotion of Sports: Tax exemptions and relief on prize money encourage young athletes to pursue competitive sports. By reducing the financial burden, the government fosters a competitive environment where athletes can focus on improving their skills rather than worrying about the tax implications of their earnings.
National Prestige: Winning international titles in sports like chess brings global recognition to India, boosting its image and soft power. To acknowledge these efforts, the government extends tax relief to athletes who bring pride to the nation.

3. Exemption for Recognized Sports Bodies

If the prize money is won through tournaments conducted by recognized sports bodies like the All India Chess Federation (AICF) or other official bodies in collaboration with the government, the prize money may be partially or fully exempt under specific provisions.

4. Reduction of Taxable Income for Young Athletes

For younger athletes or rising stars like Gukesh, who are still in their formative years in professional sports, tax relief helps them focus on their career instead of being burdened by taxes at the start. This early financial relief can aid in their overall development and continued participation in high-level competitions.

How Gukesh Could Avail Relief from Taxes on Prize Money

1. Claiming Exemption for Government-Recognized Tournaments

If the prize money is from a government-sponsored or recognized tournament, Gukesh can avail himself of the tax exemptions available for such awards. The government might declare certain tournaments as exempt, thereby relieving athletes from the burden of paying taxes on the prize amount.

2. Tax Deducted at Source (TDS) Adjustments

If TDS is deducted at a higher rate than necessary, Gukesh could claim a refund when filing his income tax return (ITR). This is because he may fall under a lower tax bracket, meaning he could have paid less tax.

3. Tax Benefits on Recognition or Awards

For awards that are given by official bodies, the tax authorities may automatically exempt the prize amount if it fits the criteria for sports-related exemptions.

Conclusion

While prize money won by individuals like Gukesh is generally taxable under Indian tax law, the government provides certain reliefs to encourage excellence in sports and acknowledge the achievements of athletes. These tax exemptions are often linked to the recognition of tournaments, the involvement of government-backed sports bodies, and the prestige brought to the nation. For young athletes, this tax relief serves as an incentive, ensuring that they are supported financially as they continue their careers in sports.

Understanding tax exemptions and the appropriate deductions is critical for professionals like Gukesh to ensure they benefit from the available reliefs and avoid unnecessary taxation. If required, athletes should seek the assistance of financial advisors or tax professionals to navigate the complexities of taxation and claim appropriate exemptions.