Online games like PokerBaazi and Dream11 are quite a rage now, and though some people win money, there is a chance that you may lose your money too. Spending lots of money playing games on these platforms is not a great idea. However, if you win money, that is also taxable.
Under Section 115BBJ of the Income Tax Act, 1961, you pay a flat 30 per cent tax for net winnings. This tax has to be paid irrespective of how much you earn or your tax slab. Also, the basic exemption limit of Rs 2.5 lakh cannot be offset against this income.
Also, if the quantum of net winnings exceeds a certain threshold, online gaming platforms are required to deduct tax deducted at source (TDS) at a rate of 30 per cent on the net winnings under Section 194BA. The TDS is deducted from the quantum of net winnings at the time of withdrawal.
Here is how the net winning is calculated according to Circular No. 5 of 2023, dated 22nd May 2023. Net Winnings = A - (B + C), where: A = Amount withdrawn from the user account during the financial year. B = Aggregate amount of non-taxable deposits made in the account by the user until the time of withdrawal. C = Opening balance of the user account at the start of the financial year. Also, under Indian tax laws, such winnings do not allow any deductions or loss set-offs. The players cannot deduct any expenses like entry fees or platform charges. Also, players cannot offset these earnings against any other salary sources.
This means players cannot deduct expenses like entry fees or platform charges, nor can they offset gaming losses against other income sources like salary or business.
Reporting Gaming Income In ITR
Gaming income should be reported under the head "Income from Other Sources.” Income obtained from activities such as gambling, betting, or other similar pursuits also falls under this category.
Penalties For Non-Compliance
Penalties may apply if a player fails to report income or underreports income from gaming. If the taxpayer is found to underreport or misreport income, a penalty that ranges from 50 per cent to 200 per cent on the tax payable can come into play.
On top of that, interest under Section 234B & 234C may apply for late tax payments. In cases where there is an instance of deliberate tax evasion through non-reporting or under-reporting, the taxpayer may also be subject to prosecution. Therefore, taxpayers need to report gaming income accurately and on time to avoid being penalized.
