D Gukesh, the youngest World Chess Champion, made history not just with his moves on the chessboard but also with his impressive earnings of ₹11.45 crore in prize money. However, the Indian taxation system ensures that even such monumental achievements are accompanied by substantial deductions. Gukesh’s ₹11.45 crore prize money and an additional ₹5 crore award from the Tamil Nadu Chief Minister—amounting to a total of ₹16.45 crore—face a combined tax bill of approximately ₹6.23 crore. Here’s a detailed breakdown of how the taxation system impacts his winnings.
Taxation Rules for Prize Money in India
India’s taxation framework classifies prize money as “Income from Other Sources.” This means:
- A flat 30% tax rate applies to such earnings.
- A 15% surcharge is added for incomes exceeding ₹1 crore.
- A 4% health and education cess is levied on the total tax liability.
These taxes are unavoidable unless the income qualifies for specific exemptions under the Income Tax Act. Unfortunately for Gukesh, neither his international prize money nor the Tamil Nadu Chief Minister’s award falls under exempted categories.
Breakdown of Tax on ₹11.45 Crore Prize Money
Let’s calculate the tax liability on Gukesh’s ₹11.45 crore winnings:
- Basic Tax (30%): ₹11.45 crore × 30% = ₹3.43 crore
- Surcharge (15%): ₹3.43 crore × 15% = ₹50.52 lakh
- Health & Education Cess (4%): ₹3.43 crore × 4% = ₹13.74 lakh
Total Tax Liability: ₹3.43 crore + ₹50.52 lakh + ₹13.74 lakh = ₹4.09 crore
Tax on Tamil Nadu Chief Minister’s Award of ₹5 Crore
The Tamil Nadu Chief Minister’s generous ₹5 crore award is also subject to taxation. This amount does not qualify for exemptions under Section 10(17A) of the Income Tax Act. Here’s the calculation:
- Basic Tax (30%): ₹5 crore × 30% = ₹1.5 crore
- Surcharge (37%): ₹1.5 crore × 37% = ₹55.5 lakh
- Health & Education Cess (4%): 4% of (₹1.5 crore + ₹55.5 lakh) = ₹8.2 lakh
Total Tax Liability: ₹1.5 crore + ₹55.5 lakh + ₹8.2 lakh = ₹2.14 crore
After taxes, Gukesh will take home ₹2.86 crore from this award.
Total Tax Liability
Adding the taxes on both amounts:
- International Prize Money Tax: ₹4.09 crore
- Tamil Nadu Award Tax: ₹2.14 crore
Combined Tax Liability: ₹4.09 crore + ₹2.14 crore = ₹6.23 crore
From his total winnings of ₹16.45 crore, Gukesh will retain approximately ₹10.22 crore after taxes.
Impact of Double Taxation
Gukesh’s victory occurred in Singapore, raising questions about double taxation. However, as Gukesh is an Indian resident and the prize money is likely paid in India, the Double Taxation Avoidance Agreement (DTAA) between India and Singapore may not provide significant relief. Under Indian taxation rules, the income will primarily be taxed domestically.
Key Takeaways for Prize Winners
- Understand Tax Implications: Any prize money earned, whether in India or abroad, is subject to Indian taxation rules if the recipient is a resident.
- Plan for Surcharges and Cess: High incomes attract surcharges and cess, which significantly increase tax liability.
- Exemptions Are Limited: While some awards qualify for exemptions under Section 10(17A), most prize money does not.
- Leverage DTAAs When Possible: For international winnings, consult tax experts to understand if DTAAs can minimize double taxation.
Conclusion
While D Gukesh’s historic win and earnings are a moment of pride, they also highlight the significant impact of taxation on high-value prizes. By understanding tax laws and planning effectively, winners can maximize their post-tax earnings and ensure financial stability. For Gukesh, the remaining ₹10.22 crore still marks a monumental reward for his remarkable achievement on the global chessboard.