Online Rummy Player Lost Rs 28 Lakh. Tax Officer Added Rs 2.33 Crore To His Income

A Bengaluru man played online rummy and poker with Rs 2.61 crore and received Rs 2.33 crore as winnings. Looked at separately, the second figure suggested that he had made a fortune. Put together, the two figures told a different story: he had lost Rs 27.99 lakh.

The income tax department nevertheless added the entire Rs 2.33 crore to his income. The matter eventually reached the Income Tax Appellate Tribunal (ITAT), Bangalore, which found that the addition could not stand.

How The Case Reached The Tax Tribunal

The case involved Arakere Channappa Vishwanath and related to assessment year 2022-23. Channappa had filed his income tax return (ITR), declaring an income of Rs 4.32 lakh. This included income from a house property, business and other sources.

His return was taken up for scrutiny after the Assessing Officer (AO) received information about transactions carried out on Rummyculture and Gamezy. Both online gaming platforms were operated by Gameskraft Technologies.

The tax department had searched the company’s premises in March 2022 and collected details of players and their transactions. Information supplied by Gameskraft showed gross winnings of Rs 2,33,52,271 in Channappa’s case. The amount had not been reported in his ITR.

The AO considered the wallet credits to be winnings from online games and added the full amount to Channappa’s income. The Commissioner of Income Tax (Appeals) later upheld the assessment.

The Figure That Changed The Case

Before the ITAT, Channappa drew attention to another entry in Gameskraft’s own records. His total buy-ins, or the money used to enter and play the games, stood at Rs 2,61,51,624.

This meant that the so-called gross winnings were smaller than the amount he had used for playing. Far from earning Rs 2.33 crore, he had finished with a loss of Rs 27,99,353.

The tribunal noted that the AO had picked the gross winnings from the gaming company’s data but had not considered the corresponding buy-ins appearing in that very data.

Money may be credited and debited several times in an online gaming wallet. A player may also use an earlier win to enter another game. Therefore, the total of all credits during the year cannot, by itself, establish the player’s actual income.

ITAT Deletes Rs 2.33 Crore Addition

The ITAT held that tax could be imposed on real winnings, not on the repeated movement of money within a gaming account. Section 58(4), which restricts deductions against gaming winnings, could not be used unless the department first established that the taxpayer had earned income.

The tribunal also noticed that no tax had been deducted at source on any net winnings. Since Gameskraft’s figures showed that Channappa had made an overall loss, it directed the AO to delete the Rs 2.33 crore addition.

The order was passed on July 23, 2026. It concerned the law applicable before separate provisions for taxing net winnings from online games came into effect in 2023.

FAQs

1. Why did the ITAT delete the Rs 2.33 crore addition?
The gaming records showed buy-ins of Rs 2.61 crore against gross winnings of Rs 2.33 crore, resulting in a net loss of Rs 27.99 lakh.

2. Can every credit in an online gaming wallet be treated as income?
No. Wallet credits may include money repeatedly used for playing. The taxpayer’s actual gain or loss must be determined before treating the amount as income.

3. How are online gaming winnings taxed under the present rules?
The provisions introduced in 2023 tax net winnings after considering factors such as deposits, withdrawals and the opening and closing balances of the gaming account.