Its the kind of money you werent counting on that can help with a looming bill or be spent on something you could not otherwise justify buying.
The sweepstakes sponsor could choose to pay the federal tax withholding, but if it does, the sponsors withholding rate is one-third of the prizes fair market value.
For instance, Rahul has won cute spa gift baskets the prize money of Rs 3 lakhs from a game show and he has an interest income of Rs 5 lakhs.a.Then the tax liability would be calculated as gifts with recorded message per following: Tax on Rs 3 lakhs @.9.
This is true even if you did not make any effort to enter in to the running for the prize.
But if the cash prize is not sufficient to cover the total tax liability, then either the winner or prize distributor should pay the deficit.If youre in a state that taxes cars, youll owe as much as 9 percent in sales tax.Tax on Rs 5 lakhs as per income tax slab rates after claiming the relevant deductions.But the sponsors fair market value lambda golf shoes discount figure may be subject to dispute.The prize distributor can either recover from the winner or he himself can bear the burden of tax.For instance, if you won a 25,000 car, you may have to give the sponsor 6,250 for the federal tax withholding before the sponsor will give you the car.If you live in one of the 11 states that dont tax sweepstakes prizes, you may be spared state income taxes.Here are some things to consider before you get a car loan.Youre still supposed to report and pay tax on prizes under 600.Tammy Hanratty / Getty Images, once you've taken possession of the car, you can consider a secured loan to help with the taxes.In the case of winnings from horse races, TDS will be applicable if the amount exceeds Rs 5,000.In cases where prize is given both in cash and Kind, then the total tax should be calculated on the cash portion of the prize and on market value of the prize given in kind.
You cant be required to perform services as a condition for receiving the prize.
Your state will tax the winnings too, unless you live in a state that does not impose a state-level income tax.
Not sure whether a loan is right for you?If the car is worth more than 5,000 as it no doubt is they may even require you to hand over 25 percent for federal taxes before theyll release the vehicle to you.You can make lower monthly payments and pay off your loan more quickly than you would if you bought a car with a loan.Addition to Income, prizes and awards will increase your tax bill, but the question of how much depends on the value of the winnings and the amount of your other income.The sweepstakes or contest promoter will report what it considers to be fair market value.For example, parties could dispute whether the fair market value of an automobile is the manufacturers suggested retail price or the discounted price the sweepstakes sponsor paid to buy the car.That figure may be different from the approximate retail value the sponsor cited in sweepstakes advertising.The Benefit of basic exemption limit and income tax slab rate is also not applicable to this income.Youll get a handy.
And the tax amount should be deducted while giving the cash portion of the prize to the winner.