Gambling has an old history in India. It was back in 3300 BC during Indus Valley Civilization when betting and gambling started. History claims that this civilization was engaged in betting and cockfighting on festivals. This proves that gambling was never an offense in India. Gambling involves various participants who try their luck to win a subsequent amount of prize money.
In India, gambling is regulated under a predefined law. The Public Gambling Act of 1867 governs all types of gambling in India. Gambling is a game where winning and losing are involved. In this game, the participant wagers a value on something with a motive to win. After this, the winner is drawn by chance. The winner wins the prize money. When conducted online, the participant can take part in online gambling through the internet from their house at their comfort.
A simple gambling game has both losers and winners. Losers lose all their money, but winners can become losers if they forget to pay their taxes. In India, the winning amount from gambling and lottery is considered to be taxable income. Prize money from online gambling or betting games is considered taxable under section 56 (2) (ib) of the Income Tax Act of 1961. It is compulsory to pay tax on prize money won in gambling.
What is gambling?
Gambling is a betting game in which the player puts a bet of certain value with a motive of winning. The game involves the risk of losing as well. The game involves betting and wagering done in an event at a particular place. Many websites organize online gambling. Online gambling is organized online, and players can participate in this game sitting at their homes with an internet connection.
What are lotteries?
The lottery is a game in which random numbers are drawn with a motive of prize-winning. Government organizes national lotteries games. Sometimes states also organize a lottery with a motive to announce winning prizes. The government regulates both national & state lotteries. Many private companies also organize lotteries as an agent of the government.
What types of gambling are considered taxable income?
Any sort of prize money earned through gambling is termed as taxable income. Gambling is not only about online card games, but it also includes other games. Any game that involves wagering and betting is a game of gambling. Gambling in India is classified under the following categories:
- Online lotteries
- Prize earned by online competitions
- Online sports betting
- Games of chance etc.
Gambling in India
Gambling in India is restricted to only a few states. The state governs and monitors such games on their end. The state has all right to formulate its regulation and law for allowing gambling and lottery in the state. In states where gambling is legalized, it contributes to revenue.
The Income Tax Act of 1961 includes the income generated from this industry. The income earned as prize money on winning from gambling or other such games is termed as “income from other sources”. Players must pay taxes on the winning amount. Government imposes taxes on regulated and legalized gambling activities. These can directly or indirectly contribute to India’s GDP. The taxes paid on winning from lotteries and gambling come under section 115BB of the Income Tax Act of 1961.
The winning and losing from gambling are often recorded in India. The record-keeping is maintained by the internal revenue service (IRS). It is possible to deduct losses from gambling income, but record-keeping is essential to regulate the overall gambling in India. The income is reported with Form W-2G for gambling winning. It is important to enter the details of gambling winning while filing taxes.
State control laws for online gambling and lotteries
There is a central legislation that governs online gambling and lotteries in India. All activities of gambling are regulated under The Public Gambling Act of 1867. The act has detailed rules and regulations for gambling. The states of India can apply the central law for gambling or can formulate their laws to govern the activities of gambling.
There are only 13 states that allow lotteries and gambling under the Lotteries (Regulation) Act 1988. In these states, private companies have the right to sell lotteries. They are the agents of the government. The revenue department governs the lotteries and their operation here.
How does the state earn from gambling?
The revenue department of the state governs gambling. The government collects a huge amount of revenue from gambling and lotteries. There is tremendous growth in the collection of taxes on the prize money of gambling activities in states where gambling is already legalized.
When most of the states follow guidelines of central to collect taxes on gambling, many states also keep the flat tax rate on gambling. Despite strict regulations, gambling and lottery are quite common in states, and this makes it a good source of revenue for states.
How to calculate tax on gambling winning amount?
The winning prize earned through gambling or lottery is termed in the category of income from other sources. Section 115BB of the Income Tax Act has a detailed description of taxes on winning from sources such as betting, card games, gambling, and other relevant sources. The tax on the winning amount is a flat 30% + 4% CESS rate. The total tax charged is 31.2%.
This means that the participant has to pay a tax of 31.2% on the total amount of prize earned through gambling or lottery. The winner receives the final amount only after deduction of this TDS. This tax is applicable on prize money that exceeds INR 10,000. The taxpayer is not allowed to take any deduction on this amount.
Winning outside India
Any income earned in the country is termed taxable income. It is compulsory to pay taxes on this income. Any income earned outside the country is also considered income. An individual earning from foreign sources also need to pay a certain amount as a tax.
India has its law and regulation on online lottery and gambling. Indians commonly participate in online gambling conducted by foreigners and non-resident Indians. If a player wins any amount on online gambling outside India, he/she is liable to pay 30% of the winning amount. This is applicable in amounts exceeding INR 10,000.
Gambling was always considered as income in India. It was charged for taxation for ages. With the popularity of online gambling, new laws are implemented that collect taxes on the total amount of winning. This surely means a reduction of the total amount of winning. If an Indian resident wins a lottery prize online, he must transfer the amount to his bank account.
The regulations are made to ensure that players follow all tax implications without any ignorance. They must pay applicable tax on the winning money without any delay or ignorance. With the popularity of online gambling in India, this is compulsory to keep regulation on such activities.
Why is gambling income taxable?
Many believe the government regulates gambling with tax to fill their pockets with a huge amount. This is not the only reason for imposing taxes on gambling. The government imposes a tax on such games to ensure safe gaming experiences for participants.
These provide safety for the government, companies, and players. Gambling is a regulated industry that creates a foundation for how these games are organized. Regulation is done with a motive of welfare to the society. By regulating online gambling and imposing rules on such games, the government wants to bring transparency to these games.
Another reason for imposing regulation on such games is to create a fair competition in which people participate to win. It further ensures the security and privacy of users and players. When the government regulates gambling, people will show their trust in such games. This will make them participate in such games to win.
The boom in technology has made it possible for players to enjoy gambling online. The recent trends have changed the belief of people that they had on gambling and other games of the lottery. Surely, such games include both risks of loss and chances of winning, but one must play such games at their own risk. Participants must choose genuine and regulated sites for enjoying gambling. Such websites are closely monitored by the government to avoid risks. One must never develop an addiction to such games.
It is also important to understand the rules and regulations that the government has imposed on such games. When an individual wins from such games, he must not forget to pay the taxes at the right time. The government has already regulated gambling to make it legal. It is certain that with growing awareness about gambling, it will be legalized in other states as well. We hope that in just a few years, gambling will become legal in all parts of India.
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