If you sell lottery tickets — as an agent, a distributor, or a small shop that stocks them — a part of your commission never reaches you. Section 194G of the Income Tax Act requires the person paying you to cut tax at source (TDS) before the commission is handed over, once your earnings cross Rs 20,000 in a year. The rate is only 2% now, but many older guides still show the old 5% rate and the old Rs 15,000 threshold, and that stale pair is the single biggest source of confusion for lottery agents. This guide explains the section 194g rate, the threshold, the difference from the 30% tax on lottery winnings, and how to claim the deducted tax back.
Quick answer: Section 194G requires 2% TDS on commission, remuneration or prize paid to a person who stocks, distributes, purchases or sells lottery tickets, once the total crosses Rs 20,000 in a financial year. The rate fell from 5% to 2% on 1 October 2024, and the threshold rose from Rs 15,000 to Rs 20,000 on 1 April 2025. Without a PAN the rate is 20%. From 1 April 2026 the provision sits in Section 393(3), Table Sl. No. 4, of the Income Tax Act, 2025.
Section 194G at a glance
| Item | Rule |
|---|---|
| Section | 194G of the Income Tax Act, 1961 (from 1 April 2026: Section 393(3), Table Sl. No. 4, of the Income Tax Act, 2025) |
| TDS rate | 2% with PAN; 20% without PAN (Section 206AA) |
| Threshold | No TDS if aggregate commission to a person in a financial year is Rs 20,000 or less (Rs 15,000 before 1 April 2025) |
| Applies to | Commission, remuneration or prize on stocking, distributing, purchasing or selling lottery tickets |
| Paid to | Any person in the lottery sale chain — agent, distributor, stockist or seller |
| Who deducts | Any person paying the commission — state lottery department, organiser, distributor or stockist |
| When deducted | At the earlier of credit to the payee’s account or actual payment |
| TDS return | Form 26Q (from 1 April 2026: Form 140); TDS certificate Form 16A (now Form 131) |
| Payment code | 1063 |
| In force since | 1991 |
What is Section 194G of the Income Tax Act?
Section 194G deals with one specific payment: the commission, remuneration or prize that a person earns from lottery tickets. It covers everyone in the chain that moves a ticket from the lottery organiser to the buyer — the stockist who holds tickets, the distributor who supplies them, and the agent or shopkeeper who sells them to the public. If you earn money in any of these roles, the person paying you must deduct TDS under this section.
The words “by whatever name called” matter. The section covers commission, remuneration or prize — so it does not matter what the payment is labelled in the agreement. A “selling incentive”, a “distribution margin” or a “prize for the highest sales” all fall under Section 194G if they are paid for stocking, distributing, purchasing or selling lottery tickets.
There is no turnover test for the deductor. Any person who pays such commission must deduct TDS — a state lottery department, a private lottery organiser, a distributor paying a sub-agent, or a stockist paying a retailer. The only test is the amount: the total commission paid to one person in a financial year must cross Rs 20,000.
The section has been on the books since 1991, when organised state lotteries were already a large business. The Income Tax Appellate Tribunal confirmed in CIT vs. Alok Kumar (2014) that TDS on lottery ticket sale commission is mandatory — a payer cannot skip it by calling the payment something else.
What is the TDS rate under Section 194G?
The TDS rate under Section 194G is 2% of the commission. It is a flat rate — it does not depend on your income slab. If you furnish your PAN, the payer deducts 2%. If you do not furnish your PAN, Section 206AA pushes the rate to 20%.
| Situation | TDS rate |
|---|---|
| PAN furnished | 2% |
| PAN not furnished | 20% (Section 206AA; from 1 April 2026, Section 397(2) of the 2025 Act) |
No surcharge or education cess is added to the 2% rate. The deduction is exactly 2% of the commission amount — nothing on top.
A 2% TDS does not mean your final tax is 2%. TDS is only tax collected in advance. Your commission is business income, taxed at your slab rate after expenses. If your total tax works out lower than the TDS deducted, the extra comes back as a refund when you file your income tax return. If it works out higher, you pay the balance.
What is the threshold limit for TDS under Section 194G?
No TDS is deducted if the aggregate commission paid to a person in a financial year does not exceed Rs 20,000. This threshold applies per person, per financial year — all commission payments to the same agent in the year are added together.
The threshold changed recently, and many older articles still show the old figure. Here is the correct position:
| Period | Threshold |
|---|---|
| Up to 31 March 2025 | Rs 15,000 |
| From 1 April 2025 | Rs 20,000 (Finance Act, 2025) |
The rate changed too, a few months before the threshold:
| Period | TDS rate |
|---|---|
| Up to 30 September 2024 | 5% |
| From 1 October 2024 | 2% (Finance Act, 2024) |
So for the current financial year, FY 2025-26, the rule is simple: 2% TDS above Rs 20,000. A guide that still says “5% above Rs 15,000” is describing the law as it stood before October 2024 and April 2025. If a payer deducted 5% from your commission in FY 2025-26, that is wrong — check the dates and ask for a correction.
The Rs 20,000 figure is a threshold, not a tax-free slab. Once the aggregate crosses it, TDS applies to the full amount, not only to the part above Rs 20,000. This is the point most people get wrong.
Example: A distributor pays you Rs 12,000 in June and Rs 12,000 in December. The first payment is below the threshold, so no TDS is deducted on it. But the two payments together come to Rs 24,000, which crosses Rs 20,000. At the December payment, TDS of Rs 480 (2% of the full Rs 24,000) is deducted, and you receive Rs 11,520 in December.
The same full-amount rule applies to a single payment. A single commission payment of Rs 25,000 attracts TDS of Rs 500 — not 2% of the Rs 5,000 above the threshold.
Who deducts TDS under Section 194G?
Any person who pays commission on lottery tickets must deduct the tax. In practice the chain looks like this:
- The state lottery department or organiser pays commission to its distributors and stockists.
- A distributor pays commission to sub-distributors and agents below it.
- A stockist or agent who pays commission to a retailer or sub-agent must also deduct TDS, if the amount crosses the threshold.
Every level of the chain is a deductor for the payments it makes. There is no exemption for small payers — a village-level agent who pays commission to a sub-agent is covered by the same rule, as long as the Rs 20,000 threshold is crossed.
One practical point: the threshold is tested per payer, per payee. If you earn Rs 18,000 from distributor A and Rs 18,000 from distributor B, neither deducts TDS, because each payer’s total to you is below Rs 20,000. But the full Rs 36,000 is still your taxable income, and you must report it in your return.
When is TDS deducted — at credit or at payment?
Section 194G applies at the earlier of credit or payment. The tax must be deducted when the commission is credited to your account in the payer’s books, or when it is actually paid to you — whichever happens first.
This matters for agents whose commission is credited monthly but paid quarterly. The TDS is deducted in the month the amount is credited, not when the money finally lands in your bank account. If the payer credits Rs 30,000 of commission to your ledger in April but pays it in July, the TDS of Rs 600 is deducted in April.
Advance payments are covered too. If a distributor pays you an advance against future ticket sales, TDS applies on the advance when it is paid, because the payment happens before any credit.
What happens if PAN is not furnished under Section 194G?
If you do not give your PAN to the payer, the TDS rate jumps from 2% to 20% under Section 206AA. The threshold still applies — no TDS below Rs 20,000 — but above it, the deduction is ten times higher.
Example: Your commission for the year is Rs 50,000. With a PAN, TDS is Rs 1,000 (2%) and you receive Rs 49,000. Without a PAN, TDS is Rs 10,000 (20%) and you receive Rs 40,000. Giving your PAN before the payment saves Rs 9,000 of upfront deduction on this amount alone.
The extra deduction is not lost — it is still your money, and you claim it back in your return. But the refund takes months, and your cash flow suffers in the meantime. Keep your PAN updated with every distributor and organiser who pays you.
Section 194G vs Section 194B — what is the difference?
People mix up these two sections because both mention lottery tickets. They cover opposite sides of the same business:
| Point | Section 194G | Section 194B |
|---|---|---|
| Who is taxed | The agent who sells the tickets (commission) | The person who wins the lottery (winnings) |
| What is paid | Commission, remuneration or prize on selling tickets | Winnings from a lottery, crossword puzzle, card game or other game |
| TDS rate | 2% | 30% (flat, under Section 115BB) |
| Threshold | Rs 20,000 aggregate in a financial year | Rs 10,000 per transaction |
| New Act | Section 393(3), Table Sl. No. 4 | Section 393(3), Table Sl. No. 1 |
| Payment code | 1063 | 1058 |
| Section 197 certificate | Available (Form 13) | Not available |
The rate gap tells the story: the winner’s TDS is 30% because winnings are taxed at a flat 30% with no deduction and no slab benefit. The agent’s commission is ordinary business income, taxed at slab rates, so the TDS is only 2% — a small advance against the final tax.
If you are an agent who also buys tickets yourself and wins, both sections apply to you in different roles: 2% TDS on your commission under Section 194G, and 30% TDS on your winnings under Section 194B. For the full rules on winnings, see our guide on tax on lottery winnings in India.
Section 194G vs Section 194H — what is the difference?
Section 194H is the general TDS section for commission and brokerage. Section 194G is the special section for lottery ticket commission. The two now have identical rates — 2% above a Rs 20,000 threshold from FY 2025-26 — which is why people confuse them, but they apply to different payments:
| Point | Section 194G | Section 194H |
|---|---|---|
| Covers | Commission on stocking, distributing, purchasing or selling lottery tickets | Commission or brokerage on any other transaction |
| TDS rate (FY 2025-26) | 2% | 2% |
| Threshold (FY 2025-26) | Rs 20,000 | Rs 20,000 |
| New Act | Section 393(3), Table Sl. No. 4 | Section 393(1) |
| Payment code | 1063 | 1006 |
If the commission is for selling lottery tickets, it is Section 194G — even though the rate is the same as Section 194H. The distinction matters for the TDS return: the deductor must report the payment under the correct section and payment code. A lottery commission wrongly reported under Section 194H can create a mismatch in the deductee’s Form 26AS. For the general rules, see our guide on Section 194H TDS on commission and brokerage.
Insurance commission has its own section too — Section 194D, also 2% above Rs 20,000 from FY 2025-26. The Finance Act, 2025 aligned the rates and thresholds of Sections 194D, 194G and 194H. See our guide on Section 194D TDS on insurance commission.
How is lottery commission taxed in your hands?
TDS is only the collection mechanism. The commission itself is taxed as income from business or profession, because selling lottery tickets is a business activity. What that means in practice:
- Report the full commission as business income. The gross amount — before TDS — goes into your return. If you received Rs 49,000 after Rs 1,000 TDS on Rs 50,000 commission, your income is Rs 50,000.
- Claim business expenses. Rent of the shop counter, transport, phone, and staff costs incurred to earn the commission are deductible as business expenses, if you maintain books and bills.
- Small agents may use presumptive taxation. If your total turnover is within the Section 44AD limits, you can declare a fixed percentage of turnover as income instead of maintaining detailed books. Check the current limits before choosing this route — the scheme suits agents with low expenses.
- Claim the TDS as tax already paid. The 2% deducted by the payer is credited against your final tax. If it is more than your actual tax, the balance is refunded.
- File the right ITR. Business income from commission generally goes in ITR-3 (or ITR-4 if you use presumptive taxation). Salary-only ITR-1 does not cover business income.
What changed in 2024, 2025 and 2026?
Three changes in three years — this is why so many guides are out of date:
From 1 October 2024 — the rate fell from 5% to 2%. The Finance Act, 2024 cut the Section 194G rate by more than half. A Rs 1,00,000 annual commission that attracted Rs 5,000 TDS in FY 2023-24 now attracts only Rs 2,000.
From 1 April 2025 — the threshold rose from Rs 15,000 to Rs 20,000. The Finance Act, 2025 (Budget 2025) raised the threshold for Sections 194D, 194G and 194H together. Small agents earning between Rs 15,000 and Rs 20,000 a year moved out of the TDS net entirely.
From 1 April 2026 — the section moved to the new Act. Section 194G of the 1961 Act is now Section 393(3), Table Sl. No. 4, of the Income Tax Act, 2025. The rate (2%) and the threshold (Rs 20,000) were retained — the new Act kept the substantive TDS rates and thresholds unchanged. What changed are the form numbers: the quarterly TDS return Form 26Q became Form 140, and the TDS certificate Form 16A became Form 131. The payment code for this deduction is 1063. For returns of financial year 2025-26, the old section numbers still apply; the new numbers apply to payments made on or after 1 April 2026.
| Change | Old position | New position | From |
|---|---|---|---|
| TDS rate | 5% | 2% | 1 October 2024 |
| Threshold | Rs 15,000 | Rs 20,000 | 1 April 2025 |
| Section number | 194G (1961 Act) | 393(3), Table Sl. No. 4 (2025 Act) | 1 April 2026 |
| TDS return | Form 26Q | Form 140 | 1 April 2026 |
| TDS certificate | Form 16A | Form 131 | 1 April 2026 |
Worked examples
Example 1 — Regular agent, PAN given. You sell tickets for a state lottery and earn Rs 60,000 commission in FY 2025-26. You give your PAN. TDS is 2% of Rs 60,000, which is Rs 1,200. You receive Rs 58,800. The Rs 1,200 is not lost — you claim it as tax already paid in your income tax return.
Example 2 — Below the threshold. Your total commission for the year is Rs 18,000. Since this is below the Rs 20,000 threshold, no TDS is deducted at all. You receive the full Rs 18,000. But the Rs 18,000 is still taxable income — report it in your return.
Example 3 — Two payments, threshold crossed mid-year. A distributor pays you Rs 12,000 in June and Rs 12,000 in December. No TDS on the June payment. At the December payment, the year’s total reaches Rs 24,000, so TDS of Rs 480 (2% of the full Rs 24,000) is deducted. You receive Rs 11,520 in December.
Example 4 — No PAN. Your commission is Rs 50,000 and you do not furnish your PAN. TDS is deducted at 20%, which is Rs 10,000. You receive Rs 40,000. Furnishing your PAN before payment would have saved Rs 9,000 of upfront deduction.
Example 5 — Old rate vs new rate. Your annual commission is Rs 1,00,000. In FY 2023-24, TDS at 5% would have been Rs 5,000. In FY 2025-26, TDS at 2% is Rs 2,000. The rate cut saves you Rs 3,000 of upfront deduction on the same commission.
What must the deductor do after deducting TDS?
If you are the organiser, distributor or stockist paying commission, deducting the tax is only the first step. The rest of the compliance chain is:
- Deposit the tax. Pay the deducted TDS to the government through Challan ITNS 281 by the 7th of the next month. For tax deducted in March, the due date is 30 April.
- File the quarterly return. Report the deduction in Form 26Q (now Form 140) for the quarter. The due dates are 31 July, 31 October, 31 January and 31 May for the four quarters.
- Issue the TDS certificate. Give the agent Form 16A (now Form 131) within 15 days of the due date for filing the quarterly statement. The certificate is the agent’s proof of the tax deducted.
- Pay interest for delays. Late deduction attracts interest at 1% per month, and late deposit at 1.5% per month, under Section 201(1A).
Our guide on Form 131, the TDS certificate due 15 November 2026 explains the certificate timelines in detail.
What should you do if TDS was deducted from your commission?
If 2% was cut from your commission, work through these steps:
- Check Form 26AS and the AIS. The TDS should appear in your Form 26AS and Annual Information Statement within a few weeks of the quarter in which it was deducted. If it is missing, ask the deductor for the Form 16A/Form 131 certificate and check whether they filed the quarterly return. Our guide on Form 26AS vs AIS vs TIS explains how to check and fix mismatches.
- Check the rate and threshold. If 5% was deducted in FY 2025-26, or TDS was deducted on commission below Rs 20,000, the deduction is wrong. Raise it with the deductor — the excess can be corrected in the quarterly return.
- Report the full commission in your return. Report the gross commission as business income and claim the TDS as tax already paid. File on time — a belated return still lets you claim the refund, but it delays it.
- Claim the refund. If the TDS exceeds your actual tax, the excess is refunded after processing. There is no separate refund application; the return itself is the claim.
- Ask for a lower-deduction certificate in advance. If you know your total income is below the taxable limit, apply to the assessing officer for a certificate under Section 197 for deduction at a lower rate or nil rate — before the payment is made, not after. File Form 13 on the TRACES portal. Section 197 covers commission on lottery tickets under Section 194G. Note that Form 15G/15H does not cover this income — Form 13 under Section 197 is the correct route. Also note that the same certificate is not available for lottery winnings under Section 194B.
Common mistakes to avoid
- Using the old 5% rate. The rate has been 2% since 1 October 2024. Older guides showing 5% are out of date.
- Using the old Rs 15,000 threshold. The threshold has been Rs 20,000 since 1 April 2025. Agents earning Rs 15,000–Rs 20,000 should have no TDS deducted at all.
- Applying TDS only to the amount above Rs 20,000. Once the threshold is crossed, TDS applies to the full commission, not just the excess.
- Confusing Section 194G with Section 194B. Section 194G is 2% TDS on the agent’s commission. Section 194B is 30% TDS on the winner’s prize. They are different people, different rates, different sections.
- Confusing Section 194G with Section 194H. Both are now 2% above Rs 20,000, but 194G is lottery-specific and 194H is general commission. The deductor must report under the right section and payment code.
- Forgetting the 20% rate without PAN. A missing PAN multiplies the deduction ten times, from 2% to 20%. Keep your PAN updated with every payer.
- Treating TDS as the final tax. TDS is an advance collection. If your slab rate is lower, or your expenses bring your taxable income down, file your return and claim the refund.
- Missing the Form 26AS check. If the deductor never filed the quarterly return, the TDS will not appear in your Form 26AS and you cannot claim credit for it. Chase the certificate.
Frequently asked questions
What is Section 194G of the Income Tax Act?
Section 194G requires any person paying commission, remuneration or prize on stocking, distributing, purchasing or selling lottery tickets to deduct TDS. It covers everyone in the lottery sale chain — stockists, distributors, agents and retailers. From 1 April 2026 it sits in Section 393(3), Table Sl. No. 4, of the Income Tax Act, 2025.
What is the TDS rate under Section 194G?
The rate is 2% when the recipient furnishes a PAN. If no PAN is furnished, the rate rises to 20% under Section 206AA. The rate was 5% until 30 September 2024 and fell to 2% from 1 October 2024 under the Finance Act, 2024. No surcharge or cess is added to the rate.
What is the threshold limit for TDS under Section 194G?
No TDS is deducted if the aggregate commission paid to a person in a financial year is Rs 20,000 or less. The threshold was Rs 15,000 up to 31 March 2025 and rose to Rs 20,000 from 1 April 2025 under the Finance Act, 2025. Once the total crosses the threshold, TDS applies to the full amount, not just the excess.
Who deducts TDS under Section 194G?
Any person who pays commission on lottery tickets — the state lottery department, the organiser, a distributor, or a stockist paying a sub-agent. There is no turnover test for the deductor. Every level of the chain deducts TDS on the payments it makes, once the Rs 20,000 threshold is crossed.
When is TDS deducted under Section 194G — at credit or at payment?
At the earlier of the two. The tax is deducted when the commission is credited to the payee’s account in the payer’s books, or when it is actually paid — whichever happens first. Advance payments against future sales also attract TDS when paid.
What is the difference between Section 194G and Section 194B?
Section 194G is 2% TDS on the commission earned by the person who sells lottery tickets. Section 194B is 30% TDS on the winnings of the person who wins the lottery. The agent pays 2% on commission; the winner pays 30% on the prize. A person can face both — 2% on commission as an agent and 30% on winnings as a player.
What is the difference between Section 194G and Section 194H?
Section 194G covers commission on lottery tickets only. Section 194H covers commission and brokerage on any other transaction. Both are now 2% above a Rs 20,000 threshold, but the deductor must report lottery commission under Section 194G (payment code 1063), not under Section 194H (payment code 1006).
How do I claim a refund of TDS deducted under Section 194G?
Check that the TDS appears in your Form 26AS and AIS, then report the full commission as business income in your income tax return and claim the TDS as tax already paid. The TDS certificate (Form 16A, now Form 131) from the deductor is your proof. Any TDS above your actual tax liability is refunded after the return is processed. If your total income is below the taxable limit, apply for a lower or nil deduction certificate under Section 197 (Form 13) before the payment is made.
Official sources
- Income Tax Department, e-filing portal — https://www.incometax.gov.in
- Income Tax Department, TDS rates and forms — https://www.incometaxindia.gov.in
- TRACES, TDS statements and certificates — https://www.tdscpc.gov.in
- Finance Act, 2024 — Section 194G rate reduced from 5% to 2% from 1 October 2024
- Finance Act, 2025 — Section 194G threshold raised from Rs 15,000 to Rs 20,000 from 1 April 2025
- Income Tax Act, 2025, Section 393(3), Table Sl. No. 4 — new home of Section 194G from 1 April 2026, payment code 1063
Closing
Section 194G (now Section 393(3), Table Sl. No. 4) is a small rule with a sharp edge for lottery agents: 2% TDS on commission above Rs 20,000 a year, 20% without a PAN, and no TDS at all below the threshold. The two things to remember are the new numbers — 2% and Rs 20,000, not the old 5% and Rs 15,000 that most guides still show — and that TDS is not your final tax. Check Form 26AS, report the full commission as business income, and claim back whatever is more than you owe.
Reviewed by Asuthod Rathod, CA. Last updated: 11 November 2026.
Disclaimer: This article is for general information only and is not tax advice. Tax rules change with every Budget — check the latest provisions on the Income Tax Department portal or consult a chartered accountant before acting.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.