Did you know that tax is deducted at source when you win prizes, lotteries, raffle draws, or prize bonds in Pakistan? The Federal Board of Revenue (FBR) has clarified the rules for tax year 2026, making it important for all prize winners to understand their obligations under the Income Tax Ordinance, 2001.
Section 156: Tax Deduction on Prizes and Winnings
According to Section 156:
1. Who Should Deduct Tax:
Every person or entity paying a prize—including prize bonds, raffles, lotteries, quizzes, crossword competitions, or promotional prizes offered by companies—must deduct tax at the time of payment. The applicable tax rate is specified in Division VI of Part III of the First Schedule.
2. Non-Cash Prizes:
If the prize is not in cash, the payer must calculate tax based on the fair market value of the prize. This ensures that winners are taxed appropriately even if they receive goods, services, or other non-monetary rewards.
3. Final Tax:
Tax deducted or collected under Section 156 is treated as final tax on income arising from such prizes and winnings. This means winners do not need to include these prizes in their regular income tax returns for the same tax year.
Tips for Winners
💡 Check your prize: Identify if your prize falls under Section 156.
💡 Confirm the tax rate: Ensure the correct percentage is deducted from your winnings.
💡 Keep documentation: Retain receipts or proof of tax deducted for future reference.
By following these rules, prize winners can comply easily with tax regulations while enjoying their rewards without any legal complications.
Disclaimer: This article is for informational purposes only. Consult a tax professional or FBR for official guidance on tax matters.