Tax on Lottery Winnings, Gambling, and Online Gaming in India: AY 2026-27
India taxes winnings from lottery, gambling, betting, and online gaming at a flat 30% rate with no basic exemption. The law treats these as "income from other sources" and applies special provisions that block most deductions and rebates. With the rapid growth of online gaming platforms, fantasy sports, and e-sports in India, the Finance Act 2023 introduced a dedicated framework under Section 115BBJ and Section 194BA for taxing online gaming income. This guide covers the complete tax treatment for AY 2026-27, including TDS rules, the net winnings formula, GST implications, ITR reporting, and a worked example.
Which Winnings Are Taxed at 30%?
The Income Tax Act identifies a specific list of winnings that attract the flat 30% rate. There is no threshold below which these winnings are exempt from tax (though TDS thresholds differ, as discussed below).
Under Section 115BB
- Lottery winnings (state-run and private lotteries)
- Crossword puzzle prizes
- Horse race winnings
- Card game winnings (poker, rummy, teen patti played offline)
- Gambling and betting winnings (casino games, sports betting, any form of wagering)
- Game show prizes (television shows like KBC, reality show prize money)
- Winnings in kind (cars, gold, electronics received as prizes, valued at fair market value on the date of receipt)
Under Section 115BBJ
- Online gaming winnings (introduced by Finance Act 2023, effective from AY 2024-25 onwards)
- Covers any game offered on the internet and played on a computer, phone or other device, including real-money fantasy sports, online rummy and online poker
Section 115BBJ applies regardless of whether the game involves skill or chance.
Online Gaming Act 2025: The Promotion and Regulation of Online Gaming Act, 2025 (Act 32 of 2025, assented on 22 August 2025) prohibits offering or facilitating online money games, whether based on skill or chance. Most real-money fantasy, rummy and poker platforms have stopped money games. Winnings you received before that remain taxable under Section 115BBJ and must be reported for the year of receipt. Free-to-play social games and e-sports are outside the ban.
Tax Rate Computation: 30% Plus Surcharge and Cess
The flat 30% rate applies to the gross winnings (net winnings for online games). On top of this, surcharge (if total income exceeds Rs 50 lakh) and 4% health and education cess apply.
| Total income | Surcharge | Effective rate on winnings |
|---|---|---|
| Up to Rs 50 lakh | Nil | 31.2% |
| Rs 50 lakh to Rs 1 crore | 10% | 34.32% |
| Rs 1 crore to Rs 2 crore | 15% | 35.88% |
| Rs 2 crore to Rs 5 crore | 25% | 39% |
| Above Rs 5 crore (old regime only) | 37% | 42.744% |
Under the new regime, surcharge is capped at 25%, so the maximum effective rate is 39%. Marginal relief applies just above each surcharge threshold.
No Deductions Allowed: The "Clean Sweep" Rule
This is where lottery, gambling, and gaming income differs sharply from salary or business income.
What you cannot claim:
- Chapter VI-A deductions (Sections 80C, 80D, 80E, 80G, etc.) cannot be set off against this income
- Expenditure deduction: You cannot deduct the cost of lottery tickets purchased, entry fees paid, bets placed, or deposits made into gaming platforms against your winnings under Section 115BB
- Section 87A rebate: Not available for income taxed under Sections 115BB and 115BBJ
- Standard deduction: Not applicable (applies only to salary/pension income)
- Losses from gambling: Losses from one gambling activity cannot be set off against winnings from another
The one exception: race horse owners (Section 74A)
A loss from the activity of owning and maintaining race horses can be carried forward for up to four assessment years and set off only against income from that same activity. A punter's betting losses get no such relief, and no other gambling or gaming loss receives this treatment.
TDS on Winnings: Sections 194B, 194BB, and 194BA
Tax is deducted at source before winnings reach you. The payer (lottery operator, gaming platform, race club) is responsible for deducting TDS and depositing it with the government.
Section 194B: Lottery and Crossword Puzzles
- Rate: 30%
- Threshold: TDS applies when a single winning from a lottery, crossword puzzle, card game, gambling or betting exceeds Rs 10,000 (per transaction from 1 April 2025)
- Payer responsibility: The lottery distributor or puzzle organiser deducts TDS before payment
- Winnings in kind: If the prize is non-cash, the winner pays the TDS amount to the payer before receiving the prize
Section 194BB: Horse Race Winnings
- Rate: 30%
- Threshold: TDS applies when a single horse race winning exceeds Rs 10,000 (per transaction from 1 April 2025)
- Payer responsibility: The race club or bookmaker deducts TDS
Section 194BA: Online Gaming (Effective 1 July 2023)
- Rate: 30%
- Threshold: No minimum threshold. TDS applies on all net winnings, even Re 1
- Deduction trigger: TDS is deducted at the time of each withdrawal from the gaming platform, and again at the end of the financial year on net winnings still in the user account
- Calculation basis: TDS applies on "net winnings" as computed under Rule 133 (explained below)
Net Winnings Calculation for Online Gaming: Rule 133
Rule 133 of the Income-tax Rules, 1962, notified by CBDT in 2023 under Section 194BA, defines how "net winnings" are computed for online gaming. This is critical because TDS is deducted on net winnings, not gross amounts.
The Formula
Net Winnings at Withdrawal = Total Withdrawals in the Year minus (Total Deposits in the Year + Opening Balance of User Account + Net Winnings Already Taxed Earlier in the Year)
At year end, the closing balance in the user account is added to withdrawals, and TDS is deducted on any net winnings not yet taxed.
Where:
- Amount Withdrawn includes cash withdrawals to a bank account, and the value of any in-kind benefit received
- Total Deposits means all amounts deposited by the user into the gaming account during the financial year
- Opening Balance is the balance in the user account at the start of the financial year (April 1)
How It Works in Practice
- At each withdrawal event, the platform computes net winnings using the formula above.
- If net winnings are positive, TDS at 30% is deducted on the net winnings amount.
- If net winnings are negative or zero, no TDS is deducted for that withdrawal.
- At the end of the financial year (March 31), the platform computes net winnings including the closing balance and deducts TDS if applicable.
Example: Net Winnings Calculation
| Particulars | Amount |
|---|---|
| Opening balance on 1 April | Rs 2,000 |
| Deposits during the year so far | Rs 10,000 |
| First withdrawal | Rs 25,000 |
| Net winnings (25,000 minus 10,000 minus 2,000) | Rs 13,000 |
| TDS at 30% | Rs 3,900 |
On the next withdrawal in the same year, the Rs 13,000 already taxed is subtracted in the formula, so the same winnings are not taxed twice.
GST on Online Gaming, Horse Racing, and Casinos
Betting, casinos, gambling, horse racing, lottery and online money gaming are "specified actionable claims" under GST. They were taxed at 28% on the full face value (the amount paid or deposited, not just the platform fee) from 1 October 2023, and at 40% from 22 September 2025 under GST 2.0.
GST is paid by the operator, which builds it into the amount the user pays or deposits. The user does not file GST separately, but the cost is embedded in the economics of every bet.
Worked Example: Complete Tax Calculation
Scenario: Rajesh, a salaried individual (gross salary Rs 10,00,000), wins Rs 5,00,000 in a state lottery and has net online gaming winnings of Rs 2,00,000 during FY 2025-26 (AY 2026-27). He is under the new tax regime.
Step 1: Compute Tax on Salary Income
Taxable salary = Rs 10,00,000 minus Rs 75,000 standard deduction = Rs 9,25,000.
| Slab | Tax |
|---|---|
| Rs 0 to 4,00,000 at nil | Nil |
| Rs 4,00,000 to 8,00,000 at 5% | Rs 20,000 |
| Rs 8,00,000 to 9,25,000 at 10% | Rs 12,500 |
| Tax on salary | Rs 32,500 |
Section 87A rebate: Not available. Total income is Rs 9,25,000 + Rs 5,00,000 + Rs 2,00,000 = Rs 16,25,000, which is above Rs 12,00,000. Marginal relief does not help either, because the excess over Rs 12 lakh (Rs 4,25,000) is far more than the Rs 32,500 slab tax. Had Rajesh won nothing, his salary tax would have been nil after the rebate.
Step 2: Compute Tax on Lottery Winnings (Section 115BB)
Rs 5,00,000 x 30% = Rs 1,50,000. No deduction for ticket cost.
Step 3: Compute Tax on Online Gaming Winnings (Section 115BBJ)
Rs 2,00,000 x 30% = Rs 60,000.
Step 4: Total Tax Liability
| Particulars | Amount |
|---|---|
| Tax on salary (slab rates) | Rs 32,500 |
| Tax on lottery (115BB) | Rs 1,50,000 |
| Tax on online gaming (115BBJ) | Rs 60,000 |
| Total before cess | Rs 2,42,500 |
| Health and education cess at 4% | Rs 9,700 |
| Total tax | Rs 2,52,200 |
No surcharge applies because total income is below Rs 50 lakh.
Step 5: TDS Already Deducted
| Particulars | Amount |
|---|---|
| TDS under 194B on lottery (30%) | Rs 1,50,000 |
| TDS under 194BA on gaming (30%) | Rs 60,000 |
| TDS on salary (employer allowed the rebate, so nil) | Nil |
| Total TDS | Rs 2,10,000 |
Balance tax payable (self-assessment): Rs 2,52,200 minus Rs 2,10,000 = Rs 42,200. This is the cess on the winnings (Rs 8,400) plus the salary tax and its cess (Rs 33,800) that became payable once the winnings pushed total income above Rs 12 lakh.
How to Report in Your ITR
Lottery, gambling, and online gaming income must be reported in your Income Tax Return. The correct form and schedule depend on your overall income profile.
Which ITR Form?
- ITR 2: If you have salary income plus lottery/gaming winnings (no business income)
- ITR 3: If you have business or professional income along with lottery/gaming winnings
- ITR 1 (Sahaj): Cannot be used if you have lottery, gambling, or gaming income
Where to Report
-
Schedule OS (Other Sources): Report lottery, gambling, and gaming income under "Income from Other Sources." There are specific line items for income chargeable at special rates under Sections 115BB and 115BBJ.
-
Schedule SI (Special Rate Income): Cross-reference the amounts here to ensure the 30% flat rate is applied correctly by the ITR utility.
-
TDS Credit: Verify your TDS via Form 26AS and Annual Information Statement (AIS) on the Income Tax portal. The TDS deducted under Sections 194B, 194BB, and 194BA should reflect in your Form 26AS. Claim this credit in Schedule TDS of your ITR.
Penalties for Non-Reporting
Failing to report lottery, gambling, or gaming income carries significant consequences. The payer's TDS appears in your Form 26AS and AIS, so omission is easy for the department to detect.
- Under-reporting penalty (Section 270A): 50% of the tax on the under-reported income, rising to 200% if it is treated as misreporting.
- Interest: Sections 234A, 234B and 234C at 1% per month on unpaid tax.
Advance tax obligation: If your total tax liability for the year (after TDS) exceeds Rs 10,000, you are required to pay advance tax in quarterly installments (June 15, September 15, December 15, March 15). Interest under Sections 234B and 234C applies for shortfalls.
Common Misconceptions
"Small winnings are tax-free." False. Every rupee of lottery, gambling, and gaming income is taxable at 30%. The Rs 10,000 per-transaction threshold under Sections 194B and 194BB is only a TDS trigger, not a tax exemption.
"I can deduct my losses against winnings." Mostly false. Lottery tickets, bets and losses are not deductible against winnings under Section 115BB. Online gaming is different only because Section 115BBJ taxes net winnings: within the same user account and year, your deposits are subtracted from what you withdraw. Losses on one platform cannot be set off against winnings on another, or against lottery winnings.
"Fantasy sports are skill games, so they are taxed differently." False. Whether a game involves skill or chance makes no difference for income tax purposes. Both Section 115BB and Section 115BBJ apply a flat 30% rate regardless.
"I already paid GST, so I don't owe income tax." False. GST and income tax are separate levies. GST (40% under GST 2.0 from 22 September 2025) is levied on the operator on the amount bet or deposited. Income tax (30%) is levied on the winner's net winnings. Both apply independently.
Summary: Tax Treatment at a Glance
| Item | Lottery, crossword, betting, card games | Horse races | Online games |
|---|---|---|---|
| Tax section | 115BB | 115BB | 115BBJ |
| Tax rate | 30% plus surcharge and cess | 30% plus surcharge and cess | 30% on net winnings plus surcharge and cess |
| TDS section | 194B | 194BB | 194BA |
| TDS threshold | Above Rs 10,000 per transaction | Above Rs 10,000 per transaction | None |
| Deductions or 87A rebate | Not allowed | Not allowed | Not allowed |
| ITR form | ITR-2 or ITR-3 | ITR-2 or ITR-3 | ITR-2 or ITR-3 |
