Indian Players Now Forced To Pay Taxes On Gambling Winnings Or Face Penalty

Indian Players Now Forced To Pay Taxes On Gambling Winnings Or Face Penalty

Indian players who have earned any amount by playing and winning online games during 2021 will now have to pay taxes from their winnings. According to the Central Board of Direct Taxes (CBDT), players will now have to file an updated income tax return (ITR-U) and pay taxes on their income from iGaming, fantasy sports, betting, lottery, et cetera.

Players Will File ITR-U to Pay Taxes

CBDT chairman Nitin Gupta said that the newly introduced ITR-U could be used by those taxpayers who derive any income from the mentioned activities. The provision allows them to include any additional income they did not pay tax on and abide by the country’s income tax law.

Not paying taxes and breaching the law will entail a heavy penalty or strict legal action against the defaulters. News reports say that the income tax department has collected taxes up to Rs. 28 crores after 1 lakh individuals filed the ITR-U. 

The ITR-U was introduced by Finance Minister Nirmala Sitharaman when she presented the budget in February 2022 this year. It comes under the ambit of section 139(8A) of the Income-tax Act, 1961.

The rationale behind bringing the ITR-U is to help taxpayers rectify any mistakes they might have made in calculating their taxable income. If a person files the ITR-U, they must state all reasons for updating their income. Gupta recommended filing the ITR-U to avoid any punishment.

ITR-U Tax Could Be Between 25 to 50 Percent  

While filling their ITR-U, a taxpayer would only be required to disclose their additional income. A person can report that income under the prescribed heads and pay the tax levied on it, which can be anywhere between 25 to 50 percent. Individuals can file the ITR-U by citing various reasons for updating their income. The reasons range from not filing the tax return before, reducing the carried forward loss, reporting the wrong income, to opting for the incorrect heads of income.

The ITR-U does not require a taxpayer to disclose any detailed break-up of the reported income. Individuals can file the updated return within two years after the relevant assessment year (AY) ends. For instance, a person who has already filed returns for AY 2020-21 and AY 2021-22 can file the ITR-U in 2022-23.

Indian Players Turn to Foreign iGaming Companies

The ITR-U form is a new measure that will help the government generate revenue from operations such as iGaming, betting, and lottery. Despite more Indian players turning to online gaming, sports betting, and fantasy sports betting, the Indian government still prevents sports betting companies from operating on Indian soil. As a result, it has caused players to turn to foreign gambling platforms or offshore gaming providers. Players can bet in Indian currency via these offshore gaming platforms that have obtained their licenses from Malta, Curacao, and the Virgin Islands.

Even though Indian law does not allow domestic gambling operators to function from within the country, it does not restrict companies that operate from outside the national borders. There are no reservations against foreign betting operator firms as long as they abide by the provisions laid down under the Foreign Exchange Management Act (FEMA).

Leading sports betting companies have noted that as more Indians continue getting cheap and rapid access to the internet, the iGaming industry will continue to register quick growth. While online gambling is not illegal, India lacks a formal regulatory system to govern it. There is considerable ambiguity in India around the difference between games of chance and skill. This confusion results in offshore betting companies conducting business in India without breaching any law. 

Experts Support Legalized Betting

Several state governments have tried to ban these offshore operators, but the number of online gamblers from India continues to grow. In this light, several experts and sports betting operators have called for legalizing gambling in India. They believe that legalized betting will boost India’s economy and prevent millions of dollars from flowing out of the country. Legal experts and gambling company owners emphasize that state governments can benefit from regulating the industry as it will yield significant gaming tax revenue.

Betting firms are optimistic about the future of legalized betting in India. State-by-state legislation in India will take another 3-5 years, akin to the United States. Now that the central government is looking to impose taxes on online gambling wins, we can expect to see the Indian government seriously consider gambling legalization soon. 

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