Indian Income Tax Reflects on Online Casino Gamblers

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As in many Asian countries, online gambling has been on the rise in the last several years in India. At the same time, India has very complex gambling laws and regulations, alongside quite a few gambling restrictions that possibly undermine the industry’s amazing growth potential. When discussing the legality of gambling in India, it is important to note that different states enforce different laws and regulations.

In other words, the legality of gambling varies between the Indian states. According to the major Gaming Laws in India, every Indian state can legalize or outlaw gambling services and products. As expected, some states are more open and friendly towards gambling than others. The state of Goa has the friendliest gambling laws. More specifically, in Goa, licensed land-based gaming houses can operate, as well as gambling establishments that offer lottery games and sports betting.

The Legality of Online Casinos 

In India, casinos also legally operate in Sikkim and Daman, as licensed by the Sikkim Gaming Act or simply Sikkim Act. The Sikkim Act enforced since 2008 also legalized online gaming services. Therefore, Indian players have a variety of online casinos to join if they reside in Sikkim. In the states of Diu and Daman, gambling is regulated by the Public Gaming Act from 1976.

When the Public Gaming Act was enforced, online gambling has not existed. Today, this gambling law is very outdated and it does not regulate iGaming venues. The Meghalaya Act regulates gambling within the borders of the Meghalaya state. According to this act, companies that want to offer remote gambling operators can apply for licenses. Hence, for Indian players residing in Meghalaya, online gambling is perfectly legal.

Online gambling is also legal in Sikkim under the Sikkim Act. Speaking of the Sikkim Act, it requires all companies interested in offering remote gaming services to obtain licenses. Once they receive the required licenses, they can offer classic table games and slots. Remote gaming licenses are obtained by local agencies, including the Sikkim Tourism Department, the Government of Meghalaya, and the Goa Home Department.

The Income Tax Act – Tax Rates

With online casinos in India thriving, professionals in the field reveal that the country’s income tax rates can negatively affect the iGaming industry. According to the Indian Income Tax Act that has been enforced since 1961 in the India Code, online casino and other types of income are all taxed, regardless of an individual being an Indian citizen or not. The key taxation guidelines and rates are all contained in the Tax Act. Under the Income Tax Act, companies that are owned by both Indian residents and foreigners are taxed on income generated in the country.

Under the same legislation, companies’ income of any kind deemed to be received in the country is also taxed. In addition, Indian residents must pay taxes on their global income earned in the country, as well as on their global income generated outside of the country. In cases when the income of Indian residents is generated by gambling activities of any sort, such as online casinos and online sports betting, a fixed income tax rate of 30% applies, in addition to other applicable fees.

Hence, under the Income Tax Rate, the individual or the company paying to Indian residents gambling-related income that exceeds INR 10,000 must withhold the predetermined income tax of 30%. If a company or an individual decides to pay gambling winnings partially, it must ensure that the predetermined income tax rate at the 30% rate is paid before the whole amount of winnings is released. Essentially, the payor must ensure that the income tax rate at the current rate is paid.

Taxes on Digital Transactions 

More recently, Indian legislators introduced the EL or Equalization Levy. The main goal of the Equalization Levy introduced in 2016 is to tax digital transactions. Under the Equalization Levy, online transactions that go through companies with IP addresses based in India must pay taxes on transactions that generate accrued income to e-commerce businesses owned and operated by international companies. Essentially, the Equalization Levy taxes all forms of business-to-business digital transactions.  

Under the EL, a fixed tax rate of 2% applies to the amount of funds receivable or received by a foreign e-commerce company from Indian e-commerce businesses. Therefore, funds sent to a resident of India are taxed at 2%. In certain cases, funds sent to non-Indian residents are also taxed at 2%. If digital transactions occur between an individual and a company with an IP address in India, the amount received is also taxed at 2%.

The Goods and Services Tax Rates

The Goods and Services Tax or indirect tax applies to income generated within the “supply” sector. More specifically, the Goods and Service Tax covers the supply of products, goods, and services. Different activities that relate to online and land-based gambling, sports betting, and lotteries are covered by the Goods and Services Tax legislation.

In India, online and other forms of transactions associated with gambling and betting are levied under the Goods and Services Tax regime. Under this tax regime, betting and gambling transactions are subject to a fixed rate of 28% on the wager amount. At the same time, transactions on games of skill are not covered by the Goods and Services Tax regime. Other transactions related to gambling and betting are also taxed at the same rate.

Betting and gambling services that are offered over the Internet are also covered by the Goods and Services Tax regime at the same rate. Essentially, income generated on online betting and games of chance is taxed at 28%, while income generated on online games of skill is taxed at 18%. It should be noted that the income tax on online betting and gambling is always levied on the commission or fee determined by gambling operators. Finally, the income tax rate does not apply to income lower than ₹2.5 lakh.

Confused about complicated laws? Take our GST consultation services to get your issues solved from GST experts. Click here to know more.

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