Tax requirement for Online Casinos Winnings in India

Tax requirement for Online Casinos Winnings in India

Online Casinos - Tax requirement - Gambling - Taxscan

Gambling is nothing new to Indians with games such as Teen Patti being an instrumental part of our major festivals like Diwali.

However, the legality of gambling and its taxation in India is a tricky subject and with online gambling growing in popularity like, it is more important now than ever to understand the legal and the taxation aspects of online gambling in India.

Gambling is a state subject in India which means the legislature that governs physical casinos in the states is decided by the respective states themselves and not the central government. This is why some states like Goa and Sikkim have legal physical casinos while most of the other states do not.

The laws regulating online gambling in India get even trickier. Indian casinos are not legally permitted to promote or create websites that provide online gambling services like casino games, sports betting, and others. As for lotteries, only the state of Sikkim has a legal online lottery that allows people from all over the country to participate.

However, companies that are not based in India, also known as offshore companies, are legally allowed to create online casino sites open to the Indian market as long as they accept payments and withdrawals in Indian Rupees.

With this legal loophole, offshore companies like Betway and 10Cric have expanded their presence in India to capture the growing legal online gambling market here.

In India, any winnings from online casinos are considered to be a part of the taxable income of the winner. The Income Tax Act, 1961 is the act that regulates income tax in India.

As per Section 115B of the Income Tax Act, 1961, any winnings from lotteries, crossword puzzles, betting on races, card games, or any other game, and gambling or betting of any form or nature is taxed at a flat rate of 30%.

The Income Tax Act, 1961 also dictates that no basic exemptions are provided in the case of Section 115B.

Normally, if your annual income is below INR 5,00,000 or INR 2,50,000 depending on which tax structure, you are exempted from paying any tax under the act. However, in the case of winnings under Section 115B, your winnings will be taxed regardless of your total income.

What this essentially means is that if taxable income for the entire year is INR 50,000 from playing on online gambling sites, you are still expected to pay INR 15,000 (30% of INR 50,000) as tax.

In practice, most online casinos follow a policy of charging 30% TDS (tax deducted at source) when a player makes a withdrawal that is over INR 10,000.

In some cases, online casino sites might not charge tax at the source and allow the players to withdraw the full amount. In those cases, the onus of declaring and paying the tax on the winnings under Section 115B is on the player when they file their annual income tax return.

Under entry 34 of the Central Goods and Service Tax notification dated 28 June 2017, all services rendered pertaining to an entry into a casino would be chargeable with a GST of 28 percent on the gross amount collected as admission charge or entry fee.

In a subsequent circular dated 4 January 2018, it was clarified that the tax of 28 percent would apply on entry to casinos as well as on betting and gambling services being provided by casinos on the transaction value of betting (i.e. the total bet value), in addition to GST levy on any other services being Circular No. 27/01/2018-GST provided by the casinos such as services by way of supply of food and drinks, etc.

Now, legal online casinos in India do not technically fall within this grouping. There is a provision for “all other services not specified elsewhere”, and any such activity that falls within this category is subject to an 18% rate.

International companies like Tencent, Alibaba, and Softbank are making huge investments in India to capture the growing online gambling market here. With better online casino sites opening up regularly, the odds currently are in favor of the online gambling market growing at a fast rate in India.

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