Tax on Lottery in India

 TAX ON LOTTERY INDIA 

INTRODUCTION

In an exemplifying case , the Supreme Court in a judgement held that a state legislature has the right to impose tax on lotteries conducted by other States within its jurisdiction.

Earlier  before this significant judgement  , the Karnataka High Court delivered a judgement striking down major portions of the Karnataka Police (Amendment) Act, 2021 which banned online gambling and skill-based gaming platforms.

In 2020, the Supreme Court held that lottery, gambling and betting are taxable under the Goods and Services Tax (GST) Act, 2017.

Separate appeals were brought by the governments of Karnataka and Kerala, which had adopted separate rules for taxation lotteries run by other states and private organisations. The verdict came in response to petitions filed by the governments of Karnataka and Kerala against High Court decisions to nullify statutes adopted by their legislatures to tax lotteries organised and promoted by the states of Nagaland, Arunachal Pradesh, Sikkim, and Manipur in Kerala and Karnataka.

The tax legislation imposed by the two states, however, were deemed unlawful and unconstitutional by the High Courts, who even ordered Kerala and Karnataka to restore the money collected as tax from lotteries to the north-eastern states.

HIGH COURT  RULING OF KARNATKA AND KERELA HIGH COURT 

The Karnataka Tax on Lotteries Act of 2004 and the Kerala Tax on Paper Lotteries Act of 2005 were both challenged for their legality. The Karnataka High Court, in separate rulings issued in December 2010 and March 2011, found that the Karnataka legislature lacked legislative competence to approve the aforementioned law and ordered the states that organised the lottery schemes to reimburse the money they had put up. Nagaland, Arunachal Pradesh, Meghalaya, and Sikkim were among these states.

Similarly, the Kerala high court declared the 2005 Act, 2005 to be illegal and unlawful in separate rulings issued in April 2020 and August 2021.

SUPREME COURT RULING 

 The Supreme Court, on the other hand, stated that "lotteries" are a "kind of gambling activity." The State List in the Constitution's Seventh Schedule includes 'betting and gaming.' All activities that are in the nature of 'betting and gambling,' including lotteries, are subject to taxation. The court stated that there is no dispute that lotteries are 'betting and gambling,' regardless of whether they are conducted or organised by the Government of India or the Government of a State, or whether they are authorised by the State or conducted by an agency or instrumentality of the State government or the Central government or any private player. The Court further noted that there is no particular entry in List I (Union List) for the imposition of a tax on betting and gaming, as it is only provided in the State List. "As a result, Entry 62 of List II grants a state assembly legislative authority to charge a tax on betting and gambling." At the same time, the court stressed that Entry 40 of List I is solely intended to regulate lotteries and that it cannot be broadened to include the competence of the Parliament to charge taxes on lotteries.