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Taxes on Online Winnings of Indian Gamblers

26 Jul 2022

Many players and even gaming industry workers are often perplexed by India’s rules on online gambling taxation. Our research team went through the most reputable public sources on taxation laws and regulations and put together a simple guide on applicable rates and tax clearance rules for online gambling earnings.

The Legal Framework

Most of us know it all too well – legislators and especially public administrators always play catch up to technological and economic trends. The online gaming boom is just one of many digital segments that seem to have caught off-guard government agencies and policymakers.

Even today, getting accurate information on taxes and fees related to online casino and online gaming starts with the Public Gaming Act of 1867 which is still the basic rulebook of India on the matter. Next up, players need to figure out their payment and withdrawal methods, as well as their localization for tax purposes.

Why is earning location important? On one hand, all income from gambling and online casinos has to be reported on the annual tax form, just as other investments and earnings generated in India. That is true for both residents and non-residents.

Then again, the Prevention of Money Laundering Act (2002) clarifies that those incorporated or based abroad are not reporting entities in the eyes of the domestic tax service administration. Moreover, India has Double Taxation Avoidance Agreements (DTAA) with over 160 countries, leaving players the choice on where to declare their winnings, particularly if those come from online gaming.

Taxation Laws Are Both General and Very Specific on Gambling Income

Section 194B of India’s Income Tax Act lists all revenue categories liable to a levy and states the tax brackets. Section 115BB, introduced as an Amendment in 1986 by the Finance Act, includes precise rules on taxing income from “lottery, crossword puzzle, races, including horse race or card game” and any other “gambling or betting whatsoever”. These two acts place gambling winnings in the flat 30% tax bracket.

The Law makes no distinction between online and offline gaming income, it all needs to be declared. While some gambling examples have been listed, there are no differences according to game or platform – i.e., Poker, Fantasy Sports, Online Casino, Online Betting and Lottery are treated all the same. In fact, the Income Tax Act even specifies that both legal and illegal income is subject to taxation.

We may come across some regional differences: such as the Andhra Pradesh Horse Racing and Betting Tax Regulation (1358F) or the Delhi Entertainments and Betting Tax Act. These, however, provide business definitions, permissions and procedures, while tax collection for individuals always follows a centralized approach.

Are There Any Indirect Gambling Taxes?

The Goods and Services Tax (GST) comes to mind first, of course. The entertainment category mentions casinos, races and related services – all taxable at 28% GST. But we remind you that only registered suppliers of such services have to declare and pay GST. Players need not worry about it, they see the tax added in the final price of the gaming service they purchase, e.g., an online lottery ticket.

Other Tax Surcharges

If you happen to win big (and we wish you to have that “problem”!), you should know that:

  • Gambling wins in excess of Rs 50 Lakhs incur a tax surcharge of 10%, making the total income levy 33%;

  • Gaming income above Rs 1 Crore incurs a 15% surcharge, raising the net taxation to 34.5%.

These are mostly relevant to larger one-time profits, naturally, from games like the lottery or from other big jackpot wins.

Most gaming earnings face only the flat-rate tax plus the Health and Education Cess. This surcharge is set at 4% (calculated on top of the 30%) for all income brackets. Effectively, it makes the total levy on gambling winnings 31.2%.

Procedures and Regulations for Proper Gambling Tax Reporting

What else should you know about filing correctly your online gambling taxes?

  • All gaming and betting income originating in India should be traceable to the Aadhaar/PAN Cards of both player and operator;

  • Use the proper category in the income tax forms – gambling is not a recognized “investment” and is not tax-deductible, even when based on skill! In early 2022 the Finance Minister stated that crypto assets will also be taxed like other premium consumption categories, citing gambling and betting. This also makes any losses ineligible for deduction;

  • The non-taxable minimum is set at Rs 10,000. Above that amount, some online gaming platforms start withholding 31.2% of your winnings at the source;

  • In-kind wins (i.e., non-cash prizes) are also subjected to income taxes and should be reported;

  • When withdrawing your earnings, be aware of the minimum and maximum limits for your chosen method. Digital transactions are also regulated by Section 56(2) of the Income Tax Act and allow for transfers under Rs 50,000 to be considered as a gift. This could make the amount withdrawn non-taxable, although it still belongs to the “income from other sources” category.

Ultimately, income taxes are “recoverable as public demand”, meaning that collection is encouraged and often enforced at the source. The principle is valid for operators and players alike. Withholding 31.2% (or even only 30%) as Tax Deducted at Source (TDS) is standard practice for many legitimate and trustworthy gaming platforms.

Online players should expect to see their winnings above Rs 10,000 impacted by this. It allows them to withdraw their net gaming income and not have the responsibility of filing it separately. Paying out full-amount sums is actually a marketing trick as it only leaves players with the burden of legitimizing their gambling income in front of tax authorities.

The Bottom Line:

The common approach on gambling taxation allows online gamers to ignore complex laws and acts. The flat tax on one’s winnings is (usually) handled by operators and players need not worry about declaring anything else in that case.

  • The Income Tax and Finance Acts hold all information about gambling taxation;

  • Gaming earnings are taxed a total of 31.2% (30 percent plus Cess);

  • Usually taxes are withheld at the source so you receive your net gambling winnings;

  • These rules are the same for online, offline, legal and even illegal gambling income.

Today, digital payments avoid complications and the challenges of foreign taxation systems. Cross-border transactions and offshore withdrawals are hassle-free, and they also simplify getting proof of one’s cash movements so that to avoid double taxation issues, at home or abroad.

Playing responsibly means being in control of your game. But it also means paying your taxes when you win! The best online casinos handle that end for you and leave you to your gaming passions.