Tax Implication on Lottery, Betting and Gambling

Rajdeep Saini

05 Nov, 2020

The term Betting and gambling often used interchangeably, putting your bet on something of value, mostly money with the realization of risk in the hope of gaining a much larger amount from the outcome of any contestant or a game. The outcome will solely depend on luck or a chance. Similar to this there is a practice of lottery, it is a game of chance which also includes online games some examples of the lottery are bingo, lotto, lottery etc.

All the income earned from betting and gambling which also includes lotteries will come under the ambit of GST as per the applicable rates.

 Let’s understand the laws and tax rates of each of the following:

Betting and Gambling

Betting is also known as a form of a wagering contract in which monetary benefits is payable by either of the party as a consequence of an unsure event. According to the Oxford industry, Gambling means playing games of probability for monetary benefit, or any risk is taken in the hope of victory. On the other hand, betting means the action of gambling on the result of any game, race, or any other predictable event. Hence the terms Betting and Gambling can be used interchangeably.

In India, gambling is illegal; the Public Gambling act 1867 prohibits all the gambling related activities in India.  According to this legislation all the gaming houses or any place where gambling business is conducted for earning profit is banned from carried out.

Section 3 of the public gambling act defines gaming houses and casinos as under:-

Any room, enclosure of wall, any house or any place where games are played including tables, dices, cards or any other  instruments used or kept by the person owing that enclosed room for his own profit or gain.

Lottery

In the landmark judgement of Future Gaming Solution Ltd v. Union of India by Sikkim High Court, it was concluded that the lottery is covered under ‘Betting and Gambling.  The lottery is just an act of betting and gambling and the powers to impose law and taxes on the on lotteries have to be inherently under an expression of betting and gambling.

The word lottery is having its roots attached from the Dutch word Loterij, which means destiny or fate.  Lottery is often termed as a game of chance for example lotto, bingo, lottery etc and it also includes online gaming.  The Lottery is a type of gambling which often involves the drawing of lots for own benefit. It is also known as an actionable claim and it does get covered under the classification of goods and services.

The Lottery consists of 3 essential characteristics:

Tax implication on Lottery, Betting and Gambling

These three activities including lottery, betting and gambling are covered under the negative list for taxation. The uniform tax rate of 30% is levied in the respective price money won from these activities. The incomes from all these sources are covered under the category of “Income from Other Sources” as per the decision made by the Goods and Service council. This tax act is an additional tax on cess, which brings it a total of 31.2%.

All the supporting services including promoting and organising the events related to betting and gambling including any form of lotteries will not be covered under the negative list. In the case of Union of India v. Martin lottery Agencies, the Supreme Court held that ‘charging service tax on the sale of lotteries is not allowed but the service tax will be applicable on the marketing and promotion for the sale of tickets.

Income tax implication

According to section  115BB, states that where the income of an individual assessed and include the income by way of winning from lotteries, betting, and gambling whatsoever, the income tax will be payable at the rate of 40%.  This will also include any other allied activities which relate to betting and gambling.

Gifts received in kind

There are many cases where instead of providing cash on the winning, a person would receive services or products for free. Generally, the casinos treat their valuable and loyal customers with luxury trips, providing them exclusive seating or expensive iPhones. When this situation arises where the benefits are received in kind, the tax should be paid either by the casino owner or the winner of the prize. The tax will be applicable on the market value of that particular good or service and is taxable at a rate of 31.2%.

No Deduction allowed

Loss from the activities of betting and gambling are not allowed to be deducted as expenditure from the computation of the Income tax. In other words, the entire income generates through these sources will be taxable in respect to section 58(4) of Income Tax Act, 1961^[1].

Conclusion

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