The gambling and betting in India is still illegal in India except in states of Goa, Daman and Sikkim. The land based casinos are operational in these states with pre-requisite licensing and is restricted to certain areas of the state only.
However, this year has seen an explosion in gaming and gambling websites. The online gambling has replaced the need for a physical gaming parlour.
While the physical form of gambling (except betting on horse racing) is generally not recognized under the law in India, the law related to online gambling still lies in the grey area. The government has not yet regulated the said area.
Multiple cases in courts of India are going on seeking its regulation and Andhra Pradesh recently became the first and only state so far to explicitly ban online gambling.
The online gambling industry has already set its feet deep in India and is growing exponentially. While the legislature is yet to regulate it, it is imperative for players in India, who indulge in online gambling to know and understand the law relating to taxation vis-a-vis gambling.
It is necessary and mandatory to disclose the income from gambling and lotteries in India. As the gambling is expressly prohibited under Public Gambling Act in India, there is no specific provision in law of taxation that prescribes for tax on monies won in prizes, lottery or gambling.
Despite this, the income from gambling, casinos, lotteries etc. can be charged under the head of ‘income from other sources’ under section 56 of the Income Tax Act, 1961.
The amount is taxable at the rate of 30 percent and cess amount also has to be paid.
Further, if the prize money exceeds Rupees 10,000, the tax is deducted by the organizer at source, also called TDS, and the player receives the net amount. This is done under section 194B of the Income Tax Act, 1961.
If the organizer does not go for TDS, then the player has to declare that income as income from other sources and pay the tax accordingly.
In case of physical casinos, that Indian residents play abroad, they are not allowed to carry back the entire amount; there is a limit of US $5000 on the cash that a person can carry back at home.
Notably, no deduction or allowance is permitted from such income. The usual income slabs are also not applicable on income from gambling, lotteries, prizes, betting etc.
To function within the law, it is pertinent that a player knows the rules related to taxation and its implications.