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Lottery Taxes in India – 2 Different Types
Taxes aren’t the best but a necessary part of a functioning society and lottery taxes are not an exception.
In India taxes on lotteries are divided into two different categories – for lottery providers and for lottery players.
Lottery providers are:
- Government Lotteries
- Government Sanctioned Lotteries
The second tax is the player tax. You need to pay player tax for:
In this article, you can learn more about both the different lottery taxes in India and how they apply to you.
Tax on Lottery Winnings
The Indian government has decided that any gambling wins count as an income source. Therefore you will have to pay taxes on any of your lottery wins.
If you win a lottery in India, international or government, you will have to file your earnings as “Income From Other Sources” when filing your returns for paying income tax each year.
All gambling wins come under the category of special incomes under the Indian Tax Law.
Under Section 194B of the Income Tax Act, 30% tax is deducted on any lottery winnings above Rs 10,000.
Example: If you win a jackpot of Rs. 10 crores you will receive Rs. 7 crores and the government will take Rs. 3 crores.
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How Tax is Deducted
You can play and win both international lotteries from all over India and government lotteries in states where lottery is legal.
As such your lottery tax will be deducted in different ways depending on which game you play.
Government Lottery Tax
If you win more than 10 000 rupees in a government lottery the tax will be deducted from your prize straight away.
After you have filed your claim and it has been accepted, the amount of money you receive will be your total prize minus the 30% tax the government claims.
International Online Lottery Tax
When you win an international online lottery your prize money will be credited to your lottery account.
Thereafter it is your responsibility to file your lottery winnings in your income declaration.
Tax will be deducted after what you put into your income declaration.
How to Avoid Taxes
Luckily there is a way to avoid taxes.
It is not possible to evade paying your tax if you play government lottery but it is possible with international online lotteries.
When you win at a worldwide lottery website your winnings will be credited to your account.
To get your winnings you have to withdraw money from your account.
Since only wins over 10 000 INR will be taxed you can withdraw your winnings in batches of 9 999 each time
Even if you were to get an audit they will only see amounts below 10 000 which are tax free.
So even if you win 1 lakh you can withdraw the amount several times to completely avoid any taxes and enjoy the full prize money!
This is not illegal since international online lotteries are legal in India and tax planning is common.
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Lotto Provider Tax Rate
After years of discussion, the Goods and Service Tax council decided to add a new tax rate to lotteries. It was decided on the 18th of December, 2019, and is a fixed uniform tax rate of 28%.
The new tax rate will come into place on the first of March, 2020 and will be applied to the following lotteries:
- Private
- State
- Online
- Physical
- Domestic
It is not quite what lottery distributor representatives wished for as they had previously asked for a maximum tax of 20%.
Yet this is significantly better than the current tax structure that was in place so, in my opinion at least, this a step in the right direction.
Previously government sanctioned private lotteries were charged 28% whereas state run lotteries were charged 12%.
This means that we might see the return of government sanctioned online lotteries such as LuckyKhel or Playwin Lottery in the future.
Reasons Behind Unison Tariff
The best argument for getting rid of the previous tax structure was the diminishing sale of official lottery tickets, the increasing number of illegal lotteries and solving the previously unjust structure.
It has long been an unfair advantage for state run lotteries compared to private run government sanctioned games.
The high price for many of the Indian private lotteries make players want to pay less and win more which can make illegal tax free lotteries attractive.
What most players don’t know is that often they have zero chances of winning these scam lotteries. Unlicensed illegal lotteries almost always cheat players out of their wins and promise prizes that don’t exist.
International online lotteries are not affected by this new law since they pay taxes on ticket sales in other jurisdictions than India.
Consequences of New Rate from 2020
As international online lotteries become more popular the new tax rate can be seen as a death sentence for state run lotteries.
A new tax rate will increase state lotto ticket prices. As many government lotteries seem to be reluctant to innovate, players will get the same out of date service for a higher price.
I truly wish for state governments to improve their service and start adapting innovation. I believe that the sale of lottery tickets is a great way to gather funds for social service programs such as the Karunya scheme.
Yet consumers have the right to get their money’s worth. If state lotteries cannot provide the best service and price they will eventually be outrun.
This is a recurring theme among government run businesses – The least amount of effort possible and no sense of providing the best possible service for the end users.