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Special Tax Regimes for Gaming and Gambling Incomes : Clause 194 (Table: S. No. 1) of Income Tax Bill, 2025 Vs. Section 115BB of Income Tax Act, 1961
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..... This provision is to be read in light of the existing section 115BB of the Income Tax Act, 1961, which has long governed the taxation of similar winnings. Section 115BB, introduced by the Finance Act, 1986 and subsequently amended, has been the statutory anchor for taxing winnings from lotteries, crossword puzzles, races (excluding income from the activity of owning and maintaining race horses), card games, and other games or gambling or betting of any form or nature. The provision ensures that such windfall gains are taxed at a flat rate, irrespective of the overall tax profile of the assessee, thus isolating these incomes from the progressive tax structure. The 2025 Bill's Clause 194, while retaining the core structure of Section 11....
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.... higher than rates on regular income. The 2025 Bill's Clause 194 extends this rationale to new forms of gaming and gambling, especially in the context of the digital economy, and seeks to address ambiguities and compliance challenges that have arisen under the previous regime. Detailed Analysis of Clause 194 (Table S. No. 1) of the Income Tax Bill, 2025 1. Scope and Coverage: - Who is Taxed? Clause 194 (Table S. No. 1) applies to "Any person." This is an inclusive and broad formulation, ensuring that the provision applies to all assessees-individuals, companies, firms, HUFs, trusts, and any other juridical person-who derive income of the specified nature. This mirrors the approach in Section 115BB, which also applies to "any assessee....
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.... The "Conditions" column for S. No. 1 states "Nil." This means there are no special conditions for this category. However, by implication and consistent with the scheme of Section 115BB, this means: * No deduction in respect of any expenditure or allowance is permitted against such income. * No set-off of losses is allowed against such winnings. * The gross amount is taxable at 30%. This is reinforced by the language of Clause 194(1), which says the income-tax payable "shall be the aggregate of- (a) income-tax calculated on income mentioned in column C, at the rate mentioned in column D..." and (b) the tax on the balance of the total income as if the winnings were not included. 5. Computation Mechanism - The computation is bifurcate....
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....yers cannot claim any deductions for expenses incurred in earning such income (e.g., cost of lottery ticket, travel expenses to the race, etc.). * Withholding Tax: Payers of such winnings are generally required to deduct tax at source at the applicable rate, ensuring upfront collection. 2. For Businesses and Payers * Compliance: Entities paying such winnings (e.g., lottery organizers, casinos, race clubs) must ensure proper deduction of tax at source and reporting. * Record-Keeping: Accurate records must be maintained to distinguish between types of winnings, especially in light of the separate treatment for online games. 3. For Regulators * Enforcement: The flat rate and denial of deductions simplify enforcement and reduce disput....
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....rences to other enactments (e.g., Patents Act, Information Technology Act). Section 115BB, while providing an explanation for "horse race" and "online game," is less detailed in its definitional apparatus. 4. Scope of Application - Both provisions apply to "any person" and cover a wide range of winnings. However, Clause 194, as part of a new legislative framework, is more explicit in its coverage and exclusions. The 2025 Bill also integrates the treatment of other special incomes (e.g., royalty, carbon credits, virtual digital assets) within the same clause, suggesting a more consolidated approach. 5. Rate of Tax - Both prescribe a flat 30% rate for the specified winnings, maintaining continuity in tax policy. 6. Deductions and Set-Offs ....
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....ferencing with Other Provisions - The interaction between Clause 194 and other provisions (such as those relating to TDS, reporting, and penalties) will need to be harmonized to avoid overlaps or gaps. Comparative Perspective: International Practice Many jurisdictions tax gambling and lottery winnings at flat rates, often higher than regular income tax rates, and frequently deny deductions for expenses. The Indian approach, as reflected in both Section 115BB and Clause 194, is thus consistent with global best practices. The separate treatment of online games is a relatively recent development, reflecting the unique characteristics and policy concerns associated with digital gaming. Potential Areas for Reform or Clarification * Clarific....