Tax on Gambling: It's Outside Theology
Gambling is a popular form of entertainment and recreation for many people around the world. However, it also has legal and tax implications that vary depending on the country and the type of gambling involved. In this article, we will focus on the tax aspects of gambling in India, where online gambling is not explicitly prohibited but also not regulated.
What is Gambling?
Gambling is defined as the act of wagering money or something of value on an event with an uncertain outcome, with the primary intent of winning money or material goods. Gambling can take many forms, such as casino games, lotteries, raffles, sports betting, fantasy sports, online gaming, horse racing, etc.
How is Gambling Taxed in India?
According to the Income Tax Act, 1961, gambling winnings are considered taxable income by the Internal Revenue Service (IRS). This includes money won through gambling sites, casinos, raffles, and fantasy sports leagues. Non-cash prizes are also taxed.
Gambling businesses will send tax forms to winners and the IRS when the winnings are Rs 50,000 or more. If the winnings are Rs 10 lakh or greater, the business might withhold up to 31% of the proceeds for federal income tax.
Gambling and lottery winnings are taxed at the ordinary income tax rate according to the tax bracket. All gambling winnings must be reported on the tax return as "other income" on Schedule 1 (Form 1040).
No deductions or expenditure incurred to earn income from gambling are allowed. The winnings are taxable at flat rate of 30% + applicable surcharge and cess.
What if the Winnings are in Kind or Partly in Kind?
If the prize money is in kind or partly in kind, then the prize distributor has to make sure that TDS has been deducted on the basis of market value of the prize before handing it over to the winner. The tax burden can be borne either by the prize distributor or the winner.
For example, if Mr. Anish wins a car from gambling or betting then prize distributor has to deduct tax on the basis of market value of car before giving it to Mr. Anish. If Mr. Anish wins Rs 5 lakh in cash and a car worth Rs 10 lakh from gambling, then the total tax should be calculated on Rs 15 lakh and deducted while giving Rs 5 lakh in cash to Mr. Anish.
What are the Recent Developments in Gambling Taxation?
In December 2023, the Goods and Service Tax Council agreed to impose GST of 28% on online gaming, horse racing and casinos. The tax will be levied on the full value of the bet made or the chips bought and there will be no differentiation between skill-based games and chance-based games.
This decision has sparked a debate among the online gaming industry and the players, who argue that this will increase their cost of playing and discourage them from participating in online gaming activities. They also claim that this will affect their livelihoods and hamper the growth of the online gaming sector in India.
Conclusion
Gambling is a complex and controversial issue that involves legal, social, ethical and religious aspects. While some people view it as a harmless form of entertainment, others consider it as a vice that leads to addiction, crime and social problems.
Regardless of one's personal opinion on gambling, it is important to be aware of the tax implications of gambling activities in India. Gambling winnings are taxable income that must be reported and paid accordingly. Failure to do so can result in penalties and interest charges from the IRS.
If you gamble in online casinos or other forms of gambling, please make sure that you file your return of income and pay your taxes diligently.
Sources:
(1) How gambling affects your taxes - cnbc.com. https://www.cnbc.com/2023/02/11/how-gambling-affects-taxes.html.
(2) Tax on Online Gambling - Tax Guru. https://taxguru.in/income-tax/tax-online-gambling.html.
(3) 28% GST On Online Gaming: Will Gamers Have To Pay More? | Skill Based Games vs Gambling. https://www.moneycontrol.com/news/videos/business/markets/28-gst-on-online-gaming-will-gamers-have-to-pay-more-skill-based-games-vs-gambling-10948711.html.
(4) GST Council to levy 28% tax on online gaming, horse racing and gambling. https://www.deccanherald.com/business/business-news/gst-council-to-levy-28-tax-on-online-gaming-horse-racing-and-gambling-1236002.html.
(5) Tax on gambling, it's outside theology. https://economictimes.indiatimes.com/opinion/et-editorial/tax-on-gambling-its-outside-theology/articleshow/101707200.cms.
(6) What Are The Income Tax Rules On Online Gambling Wins In India? - LiveLaw. https://www.livelaw.in/sponsored/what-are-the-income-tax-rules-on-online-gambling-wins-in-india-165304.
