With the end of the Rio Olympics 2016, PV Sindhu and Sakshi Malik have become household names owing to their remarkable performances just as India was beginning to fear it would have to settle for the ignominy of a medal-less run at the Games.
After winning the much-deserved medals, it's raining prizes for the winners. PV Sindhu has already been earned ₹13 crore coming from different sources, including ₹5 crore, ₹3 crore and ₹2 crore from the governments of Telangana, Andhra Pradesh and Delhi respectively. Sakshi Malik's tally, on the other hand, hovers in the vicinity of ₹5 crore, and includes a ₹2.5 crore cheque from the Haryana government. In addition to the state governments, cash prizes have poured in from entities such as Indian Railways, Bharat Petroleum Corporation, Indian Olympic Association etc.
What is the actual amount that will be credited? To answer that question let's get back to the judicial pronouncement passed in the case of Abhinav Bindra...
The country is ecstatic with the glory of medals... but no offence, given that we live and breathe taxes, our minds immediately start calculating the actual amount of money that will be credited in the sportswomen's bank accounts. We cannot help but grapple with questions such as, "Is there any tax deducted from such incomes?" or "Are these people liable for any special kind of tax?" or "Are these incomes exempt?" So let's get an insight into what actually happens!
Now, there are a lot of sources for these awards and prizes but if one has to majorly classify them, they can be slotted into the following categories:
- The central government,
- State governments,
- Government bodies such as the Ministry of Railways,
- Local Authorities, trusts and companies,
- Individuals. (You read that right, even you can announce an award if you wish to.)
So, once the awards and prizes are announced, what is the actual amount that will be credited? To answer that question let's get back to the judicial pronouncement passed in the case of Abhinav Bindra, the first Indian to win an individual Olympic gold medal at the Beijing Olympics, 2008. What a sight it was! After his feat, Bindra too was awarded numerous cash rewards and prizes, amounting to ₹4.81 crore in total on which the Income Tax Department had demanded tax from him in the light of Section 56(2)(v) of the Income Tax Act, 1961.
Consequently, Bindra knocked the doors of the Income Tax Appellate Tribunal (ITAT), Delhi by way of an appeal, wherein it was argued that the amount received by him should not be made taxable in view of the Circular No. 447 dated 22.01.1986 issued by CBDT. According to the circular, only the income received by a professional sportsperson shall be taxable, clearly meaning that a non-professional sportsperson is not liable to pay any tax.
The plea of Bindra was heard, and the Hon'ble ITAT Delhi Bench gave a decision in favour of Abhinav Bindra. Yes, you got that right, he was not liable to pay any tax. Thus, in Abhinav Bindra v/s Deputy Commissioner of Income-tax, Dehradun [2013] 35 taxmann.com 575 (ITAT Delhi), it was held that no amount of tax was required to be paid as the sum received by him was not in the nature of income, and since he is not a shooter by profession, the question of section 56(2)(v) does not arise. You may be amused to know that a similar view was taken in the case of famous cricketer Kapil Dev by ITAT Delhi.
It can be safely assumed that an amateur or non-professional sportsperson actually gets the entire sum of the prize as there's no tax payable on it.
Further, the awards/prizes received from any government or on its behalf are exempt under Section 10(17A); those from local authorities or trusts /funds are not taxable as per the proviso to section 56(2)(vii). Also, there is no special tax that covers such rewards. But the issue is still very ambiguous and debatable as there are different views available on it and there's no separate section of Income Tax Act, 1961 that governs it.
Hence, it can be safely assumed that an amateur or non-professional sportsperson actually gets the entire sum of the prize as there's no tax payable on it. And in the case of a professional sportsperson, he/she might have to pay some tax depending upon the source of such awards as discussed above.
In our view, all the awards and prizes won by the sportsperson at such international tournaments should be explicitly exempt as these are awarded to them for their exceptional performance at a global level and they contribute to the recognition of India worldwide. Further, we have an opinion that our government can allow itself to be a little generous on the taxability of these sums so that the more and more people are incentivized to take sports seriously and bring accolades for the country.