Abuse of Liberalised Remittance Scheme for offshore betting under CBIC lens

Separate investigation on home-grown online gaming companies shows tax evasion of up to Rs 80,000 crore

The Central Board of Indirect Taxes and Customs (CBIC) has raised the red flag with the Reserve Bank of India (RBI) on the Liberalised Remittance Scheme (LRS) being misused for betting overseas, which is not allowed and is resulting in significant tax evasion.

According to a preliminary probe by the CBIC, several individuals and entities are misusing the LRS route to place bets on offshore betting platforms allegedly operating from tax havens.

“We have taken up the matter with regulators, particularly the RBI. We suspect entities and individuals mis-declaring their purpose of making foreign exchange transactions and using those amounts for betting overseas, which is prohibited,” a senior government official told Business Standard.

Introduced in 2004, the LRS allows resident individuals, including minors, to remit up to $250,000 a financial year for any permissible overseas transaction.

The scheme, however, prohibits transactions such as remittances for purchasing lottery tickets and trading in foreign exchange abroad.

The official said last week the department sought the banking regulator’s cooperation to check the amounts remitted in the past six months suspected to be for betting.

“This could help us gauge the amount involved in tax evasion,” the official added.

The CBIC is also learnt to have engaged with enforcement agencies and shared their probe analysis so as to locate these entities and beneficiaries, another official privy to the discussion said.

“It is possible that these betting platforms have representatives in India, luring people to place bets promising huge returns,” the official added.

The revenue department is learnt to have prepared a list of these betting platforms. It is of the view that they are not just facilitators but are also helping entities to park profits from betting overseas.

Some of these are known betting platforms, the official said, but refused to divulge the names.

Separately, the revenue department is investigating eight-nine home-grown online gaming companies that have generated back-dated invoices to evade goods and services tax (GST). 

The CBIC is in the process of issuing more tax notices to these firms following the one of Rs 21,000 crore to Bengaluru-based Gameskraft Technology (GTPL) for allegedly evading taxes on betting.

The amount of GST evasion is suspected to be Rs 70,000-80,000 crore, including the allegedly evaded taxes by Gameskraft, the first official said.

Gameskraft has been accused of promoting online betting through card, casual and fantasy games like Rummy Culture, Gamezy and Rummy Time.

The firm, it has been alleged, is pushing customers to continue betting because there is no way of going back once the money has been added to the wallet.

The action by the revenue department against these gaming platforms has come at a time when the GST Council is examining a taxation issue with respect to online gaming and has tasked a high-level ministerial panel to make a suggestion on the matter.

The panel is in the process of deciding a GST rate for online gaming, horse racing, and casinos, and it is also looking at whether online games of skill should be treated differently from games of chance.

The panel had earlier recommended 28 per cent on gross gaming revenue for online gaming, but it sought time to submit its final recommendations to the Council.

• Entities and individuals “misdeclaring their purpose” of making foreign exchange transactions
• LRS being misused for illegal betting, resulting in huge tax evasion, according to CBIC’s preliminary probe
• Revenue dept seeking RBI cooperation to check the amount remitted outward in last six months 
• 6-7 overseas betting platforms allegedly operate from tax havens 
• List of such platforms, which also allegedly help entities park betting profits overseas, being prepared