New Tax Reform in India for Lotteries, Game Shows, Betting and Racing

Tax - betting - racing - Taxscan

For many years, India had a dual tax rate for what can be unofficially categorized as a game tax for prize money. If a person receives money from winning the lottery, for example, this person needs to be taxed. The same goes for any money derived from participating in game shows on TV, puzzle or crossword games, betting, racing, and cards. Previously there has been a dual tax rate between products or services related to the previously mentioned activities when they are offered by a non-governmental organization and a governmental organization. In the example of a person winning the lottery, if the lottery product was offered by a non-governmental organization, the winner would have to pay 28% under the goods and services tax. While the governmental counterpart, the winner would only have to pay a duty of 12%. This is a huge discrepancy that has created unfair market conditions among competitions. It has been widely criticized by private retailers who point to the fact that such conditions could force them out of business.

New Uniform Rates of Tax

The new uniform tax introduces a flat rate of 30% for prize money deriving from these activities and falls under the category of “Income from Other Sources” as per the decision made by the GST (Goods and Services Tax Council). There is an additional tax on tax, cess which is applied to the flat rate which brings the total to 31.2%. Besides lotteries, this also includes receiving prize money from game shows and entertainment programs, completing a crossword, or puzzle games such as Sudoku. When it comes to receiving prize money from betting and racing, these are closely linked but categorically different. Betting or gambling refers to sports betting or playing casino games, like live casino, slot or table games, either offline or online. Racing refers to specifically betting on dogs and horse races. Card games refer to games such as poker or rummy, played either online or offline. So, any income derived from these activities, such as winnings, without any expenditure or allowance, will be taxable with no exception, with no difference if the activity was carried out offline or online.

Gifts received in kind

Gifts in kind or in-kind donations are a kind of giving in which, instead of giving cash prizes, a person would receive products or services for free. Gifts in kind are commonly used online by casino brands to award players who are loyal and spend a lot of time and money in the casino. Typically, the casino would treat important customers to luxury trips, exclusive seats to sporting events, and electronics such as iPhones and iPads. When prizes are given in kind, the tax should be paid by either the prize distributor, e.g. online casino operator or the prize winner himself can bear the burden of the tax. Tax amounts are determined by the market value of the prize that was given and is taxable at 31.2%. Neither gifts in kind nor cash prizes in kind should be confused with registration bonuses given by casino operators to new customers when they start playing in an online casino. Tax is only applicable when a person receives actual money or gifts outside of the online casino or game show.

Taxation rules may vary by state in India, with as low rates as 28% for winnings from state-run lotteries. Taxes on prize money and gifts can be frustrating, but as with all taxes, it’s vital for various functions in the country and is for the greater good of India.