D Gukesh, an 18-year-old chess prodigy from India, has become the youngest World Chess Champion, earning accolades and a staggering prize of ₹11.45 crore. However, his triumph comes with a significant financial cost—India’s taxation system will claim a hefty portion of his earnings, leaving him with a reduced amount after deductions. Let’s dive into the tax breakdown and the factors affecting his net prize.
Taxation Rules on Prize Money in India
India’s tax rules for prize money are straightforward yet stringent. All winnings are classified under the category “Income from Other Sources” in the Income Tax Act, making them subject to a flat 30% tax. On top of this, high-income earners face additional levies such as a 15% surcharge for incomes exceeding ₹1 crore and a 4% health and education cess on the total taxable amount.
Detailed Tax Breakdown for ₹11.45 Crore Prize Money
Here’s a step-by-step calculation of the taxes levied 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
After these deductions, Gukesh’s net prize money comes to approximately ₹7.36 crore, a significant reduction from the original ₹11.45 crore.
MUST READ: D Gukesh’s Rs 11.45 Crore Chess Prize: Will It Escape Taxes?
Tamil Nadu Chief Minister’s Award: Tax Implications
In addition to the championship prize, Gukesh also received a ₹5 crore award from the Tamil Nadu Chief Minister. While this amount is generous, it is not exempt from taxes, as it does not qualify under Section 10(17A) of the Income Tax Act, which provides exemptions for certain awards approved by the central government.
Tax Calculation for ₹5 Crore Award:
- 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 retains ₹2.86 crore from the ₹5 crore award.
Combined Tax Liability on Total Winnings
Combining both his championship prize and the Tamil Nadu award, Gukesh’s total earnings of ₹16.45 crore face a total tax liability of approximately ₹6.23 crore. This leaves him with a final amount of ₹10.22 crore after deductions. Here’s a summary of the calculations:
| Earnings | Prize Amount | Tax Deduction | Net Amount |
|---|---|---|---|
| World Chess Championship | ₹11.45 crore | ₹4.09 crore | ₹7.36 crore |
| Tamil Nadu Award | ₹5 crore | ₹2.14 crore | ₹2.86 crore |
| Total | ₹16.45 crore | ₹6.23 crore | ₹10.22 crore |
Double Taxation Concerns
An interesting facet of this financial scenario is the potential for double taxation, as Gukesh’s victory took place in Singapore. However, under the Double Taxation Avoidance Agreement (DTAA) between India and Singapore, such cases are addressed to prevent individuals from being taxed twice. Since Gukesh is an Indian resident and likely received the prize money in India, the earnings are taxed primarily under Indian tax laws, limiting the impact of DTAA provisions.
Conclusion
While Gukesh’s achievement cements his legacy in the chess world, his financial reality underscores the significant tax obligations associated with large earnings in India. With a total of ₹10.22 crore in hand after deductions, the young chess champion must now navigate the complex world of financial planning to make the most of his winnings.
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