The income tax rates on prize bonds and winning of lottery shall be applied under Income Tax Ordinance, 2001. The Federal Board of Revenue (FBR) issued the Income Tax Ordinance, 2001 updated for fiscal year 2021/2022 after incorporating changes brought through Finance Act, 2021.
The income tax shall be deducted on prize bonds and lottery under Section 156 of Income Tax Ordinance, 2001.
The rate of tax shall be 15 per cent on gross amount of winning on a prize on prize bond or crossword puzzle. This rate shall be 30 per cent in case person is not on the Active Taxpayers List (ATL).
The rate of tax to be deducted under section 156 on winnings from a raffle, lottery, prize on winning a quiz, prize offered by a company for promotion of sale, shall be 20 per cent of the gross amount paid. The rate of tax shall be 40 per cent in case the recipient of winning amount is not on the ATL.
Section 156 of Income Tax Ordinance, 2001 is as follow:
156. Prizes and winnings.—(1) Every person paying prize on a prize bond, or winnings from a raffle, lottery, prize on winning a quiz, prize offered by companies for promotion of sale, or cross-word puzzle shall deduct tax from the gross amount paid at the rate specified in Division VI of Part III of the First Schedule.
(2) Where a prize, referred to in sub-section (1), is not in cash, the person while giving the prize shall collect tax on the fair market value of the prize.
(3) The tax deductible under sub-section (1) or collected under sub-section (2) shall be final tax on the income from prizes or winnings referred to in the said sub-sections.