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, it’s more important now than ever to understand the legal and the taxation aspects of online gambling in India.
Around two years ago, the Mumbai Crime Branch arrested a group of people running an unauthorized lottery in India that was causing loss of tax revenue to the Indian Government but what about the legal online gambling sites in India?
In this article, we’re going to take a look at the legal options for online gambling in the country and the tax regulations that govern them.
Is Online Gambling Legal 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.
Keeping all this in mind, you are probably thinking online gambling is illegal in India but that’s also not the case. 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.
Online Gambling Taxation in India
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 follow, you’re 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 your taxable income for the entire year is INR 50,000 from playing on online gambling sites, you’re 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 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.
Online Gambling – A Growing Trend During the Lockdown
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.
