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Rsa 77:38, iii defines "gambling winnings" as winnings from lotteries and games of chance. In inflation-adjusted dollars, state and local government revenue from gambling rose modestly from around $25 billion in fiscal year 2000 to nearly $33 billion. Federal income tax is withheld at a flat 24% rate from certain kinds of gambling winnings. This means the winnings payout is immediately reduced. Income from gambling is taxable under head income from other sources and is taxed at flat rate of 30%+ 4% cess i. All gambling winnings are taxable income—that is, income that is subject to both federal and state income taxes (except for the seven states that have no. The tax that is paid on winnings from any form of gambling is covered by section 194b of the income tax act. Any winnings that a person is. In all cases, the withdrawal receipts must be kept as proof of what has been gained from playing and what has been paid in taxes. 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