The gaming industry is crucial to the national economic scenario. It employs and engages a considerable population, including those who conduct such activities, and those who participate in them. Winnings from gaming activities are casual and non-recurring in nature. In other words, they represent a windfall gain for most participants – such gain being quite distinct from the normal concept of ‘income’ as is taxed in India. In view of this, AIGF alongwith Lakshmikumaran & Sridharan made a representation that seeks certain amendments to the Income-tax Act, 1961 relatable to the gaming industry.
The Income-Tax Act, 1961 taxes income arising from gaming activities that are in the nature of winnings from lotteries, crossword puzzle, races including horse race, card game or any other game or betting and gambling.
As aforesaid, winnings from gaming activities are mostly windfall in nature, and hence are casual and non-recurring. This was the reason why initially the Income-Tax Act did not tax any income received as winnings from gaming activities. In fact, such an income was expressly exempted from the purview of taxable income. Through successive subsequent amendments 68, the regime was changed and such income was made part of the total taxable income and also subjected to tax deduction at source. Such tax regime is quite in contrast to the tax treatment of game winnings in other countries.
The international trend is that countries generally do not tax such winnings. For example, the commonwealth countries do not tax such income because such income is not earned in pursuant to any trade and is merely the result of a recreational activity undertaken by the taxpayer. UK and Australia have a similar structure with both of them not taxing such winnings and not allowing for deductions of losses. In Canada, while most of such income is exempt from taxation in cases where the income from gaming activities takes the character of business income the same will
come under the garb of income-tax.
In light of the above, AIGF made a representation to Central Board of Direct Taxes (CBDT) where a set of amendments were being sought to the Act to bring the tax regime for the gaming industry at par with the global trend, besides making it more equitable and boosting compliance.