Role Indian Tax Laws Plays in Gambling

Indian Tax Laws - Gambling - Taxscan

The year 2020 has witnessed a rapid increase in the number of players on online casinos. Amid the pandemic lockdown, people have engaged in online gambling more than ever before. With the rise in popularity of virtual gambling, there is an immense need for a legal framework in place. While the discussion on this front remains stagnant (for years), certain aspects are evolving around online gaming that ensure healthy gambling practices and income. The Indian Tax Laws enacted in 1961 include provision for taxation on winnings made through gambling on online platforms. 

In this article, we will elucidate the details of the Income Tax Laws and the role it plays in regulating online gambling in India.

Let’s get started!                        

What is the Law Regarding Income Tax for Online Gambling?

Online casinos have become immensely popular in India in recent years. Apart from the exciting gambling experience, a variety of casino games, and enticing bonuses and offers, the biggest perk of online gambling is the provision of winning real cash. Dedicated players invest a lot of money and time in gambling on these websites and fulfilling the wagering requirements to win money. Casino platforms enjoy massive benefits through the relentless betting by these enthusiasts. To regulate their income, it is mandatory to have legal regulations in place.

Thankfully, in the year 1961, Section 115BB of the Income Tax Act was introduced, vast enough to include all such income made through online as well as other sources. Named ‘Income Through Other Sources’, this section consists of the provision to make winnings made through online gambling, betting, E-gaming, sports betting, lottery, etc. taxable.

Under the Act, any such income needs to be announced exclusively while filing income tax returns. The Tax levied on each cash reward equals a net amount of 31.2% including cess. The division is of a 30% flat rate plus cess. It should always be remembered that this Tax is levied regardless of the amount, game, or platform- every player must pay the Tax.

Additionally, according to Section 194B, any winnings over Rs.10,000 are subject to Tax Deducted at Source, commonly known as TDS. This means that the casino company requires deducting TDS before awarding the remaining amount to the player, which is then subject to taxation under Section 115BB. 

Apart from cash, players often receive rewards in kind such as gift hampers, vacations, coupons, etc. In such cases, the rate announced is the market rate of the prize. These rewards too need to follow Section 194B (TDS) if the market rate exceeds Rs. 10,000.

Tax Filing and Benefits

Any online casino player must file their tax returns without fail to avoid any legal repercussions. While filing tax returns, it is mandatory to disclose the amount won in both cash and kind and deducted TDS. This should be done even though the player has already provided all necessary details to the casino website, including PAN number, bank account details, address, Identity proof, etc. 

There are no exemptions, benefits, or expenditures that can be claimed on such tax returns. The Tax filed under this Act does not fall in the usual tax slab either. 

Why is it Important?

Gambling is an addictive practice. If not regulated, players may fall into the abysmal trap of endless betting and thus get addicted. An unregulated amount of wealth coming from an unknown source can potentially be an aggravator of such affliction to online gambling. 

To avoid such malpractices, it is imperative to have a regulatory law. This is where the Income Tax Act comes in place. Its sheer nature of being consistent across all paying cash games and all amounts make it impeccable for regulating the income of the players through online gambling. While players can enjoy carefree online gambling, they must also abide by the tax laws and hence file taxes. 

Another factor this law encapsulates is that making money through an unannounced source is often referred to as ‘Lucky Win’ or ‘Easy Money’. To ensure that the players don’t start considering gambling wins as their primary source of income and don’t get the unfair benefit from online gambling, this Tax forces them to pay the Tax and still enjoy their fair share. 

Taxation on winnings through online gambling is a splendid decision by the government. It protects the players as well as helps them keep their gambling practices in control. If you too are an online casino player, make sure you file your income tax on time, every time!

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