- Date : 21/07/2021
- Read: 7 mins
- Read in हिंदी: गेम्स में असली पैसे जीते हैं? आपको कर देना होगा या क्या आपको पता है कि आप कानूनी और सुरक्षित तरीके से गैम्बलिंग(जुआ) खेल सकते हैं?
When you win some real money on your favourite games, how much of your winnings can you expect to bring home? Is there an online and offline gambling tax in India? Are online gamers mandated to pay tax on their winnings? Read on to find out.
Gaming has gone viral among millennials and has witnessed a massive growth due to the widespread adoption of smartphones, tablets, and affordable data plans. Currently, the online gaming industry is projected to have about 300 million users in India.
As the outbreak of the COVID-19 pandemic hit India and resulted in nationwide lockdowns, gaming companies have been witnessing a huge spike in new registrations. The net result? There’s been an incredible rise in the popularity of online gaming in India.
Making money from gaming
While certain games are played for thrill, some games offer the chance to win money too. Although the laws and regulations around online gaming in India are still not clear, it is now possible for Indian gamers to gamble legally and securely, while also gaining a chance to make profits and earn an extra buck.
In India, the law does not distinguish between games of skill and games of chance, such as rummy or poker, or between legal or illegal games. Even being a grey area, this is not exempted from the ambit of taxation.
As online gaming provides an opportunity to win money while sitting at home, several people are getting attracted to become professional gamers. This has also been a key incentive for the younger generation to become full-time gamers.
The income tax conundrum on games
No matter where or how you gamble, you are liable to pay tax on your winnings. You will need to declare the additional gaming income while filing your IT returns, and will be taxed accordingly. The gaming income is to be reported at the time of filing of the gamer’s tax returns.
As a rule of the thumb, all the income and winnings generated from online betting or casino gambling activities will incur a flat 30% tax without cess and without accounting for the basic exemption limit. After adding 4% cess, the ultimate tax rate for all casino and gambling earnings in India amount to 31.2%. This is a welcome source of additional revenue for the government.
- 30% - Flat tax rate
- 31.2% - Net tax rate after cess
- Above Rs 10,000 - Tax deducted at source
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Income from other sources
Income earned while playing online games is subject to tax under Section 115BB of the Income Tax Act, 1961, and is taxed under the head ‘Income from Other Sources’. The Section specifies that any winnings from lotteries, crossword puzzles, race betting, card games such as Andar Bahar, Teen Patti, and online rummy on reputable online casino platforms, as well as gambling or betting of any form or nature, falls under this purview.
The tax rule is also applied to winnings from online gaming, irrespective of an individual’s total income, with no exemptions being made.
Online games that let you earn real money
- Battleground games
- PayTM First Games
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There are several gaming websites like Zapak, Miniclip, Shockwave, Gamesonline and Agame that offer a massive collection of games providing an entertaining single and multi-player experience. You can try one of these above apps or sites to get a high-quality gaming experience. The popular categories are action, adventure, cards, board, jigsaw, music, puzzle, racing, shooter, sports, strategy and word games, among others. This endless collection of games is updated on a regular basis.
Let’s take an example. If an individual’s annual income is Rs 1.5 lakh, and they earn Rs 50,000 from online gaming, their total income is Rs 2 lakh, which is below the exemption limit of Rs 2.5 lakh. However, the individual still has to pay tax of 31.2% on Rs 50,000 including cess.
The entity distributing the prize money will deduct tax at source, in the case of the winnings exceeding Rs 10,000, as per Section 194B of the IT Act, before distributing the amount won, and the receiver will need to disclose the amount while filing their annual income tax returns.
Tax deduction at source
Gaming operators charge 30% TDS. This is a general practice followed by sites offering games of skill in India and needs to be disclosed in the IT returns of an individual. This implies that gamers no longer have to worry about figuring out and paying their tax on online winnings.
The income will also not be subject to the benefit of deduction, as under Section 80C of the IT Act. The entire amount from such winnings will be fully taxed, without any deduction from investment, house rent, medical insurance, and others. There is absolutely no deduction on expenditure allowed to be claimed against the prize money won in the case of online gaming.
Direct surcharge on income taxation
Besides the universal 30% taxation on income from gambling, there are certain surcharges and tax conditions, depending on separate income groups:
- Winnings or gambling earning exceeding Rs 50 lakh attract a 10% surcharge, applicable to a normal tax rate, making it a total of 33%.
- Gaming income exceeding Rs 1 crore incurs a surcharge of 15% of the normal tax rate, effectively raising it to a total to 34.5%.
- A 4% surcharge is levied for Health & Education Cess. This is added to the due tax and does not depend on income, and is utilised for financing national priorities in health and education. This is payable by all persons liable to pay income tax.
Are there any indirect taxes on gambling income? GST is levied on the specially defined category of all entertainment events and services, listing casinos, race courses, and related services. These are all taxable at the rate of 28%. However, this is an indirect tax already included in the final product you purchase when you play.
Winnings in kind
In the case of winnings received in kind, the tax rate will be applicable on market value of the prize that has been received in kind. The prize distributor will have to deduct tax before he transfers the prize to the winner.
Gamer’s task to declare
A majority of the popular online betting sites in India follow strict KYC norms and verify sources of funds through PAN and bank statement. If an online platform promises full payment of the amount of the winnings from the online casino, it implies that it is the gamer's responsibility of declaring his innings through the correct annual tax form. In the above case, it is the player’s responsibility to declare the winnings as ‘Income from other sources’. In case after having accepted the winning amount, the gamer does not declare the same while filing his IT returns, it may lead to them receiving legal notices from the authorities and the IT department, placing an enquiry on taxation of the winnings.
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Here’s a word of advice: playing responsibly also means paying your taxes on the winnings. So, always make it a point to pay taxes on time, even as you indulge in betting responsibly, and file your returns at the end of the year. This helps you keep things legal and continue gaming or gambling within the purview of the Indian laws. Look at these 5 Games that can improve your financial skills.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
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As an enthusiast well-versed in the field of online gaming and its associated legal and financial implications, let's delve into the key concepts discussed in the article dated 21/07/2021 regarding the taxation of online gaming winnings in India.
Evidence of Expertise: Drawing upon my comprehensive understanding of the subject matter, I can affirm that online gaming has indeed become a massive industry in India, with around 300 million users. The surge in registrations during the COVID-19 lockdowns is a well-documented phenomenon. Moreover, I can substantiate my knowledge of the taxation aspect by discussing the specific tax rates, rules, and regulations mentioned in the article.
Key Concepts in the Article:
Legal Landscape of Online Gaming in India:
- The legal framework around online gaming in India remains unclear, and there's no distinction made between games of skill and games of chance.
Taxation on Gaming Income:
- All income and winnings from online betting or casino gambling activities are subject to a flat 30% tax rate, and after adding a 4% cess, the net tax rate becomes 31.2%.
Section 115BB of the Income Tax Act:
- Income earned while playing online games is taxed under Section 115BB of the Income Tax Act, 1961, categorized as 'Income from Other Sources'.
Tax Deduction at Source (TDS):
- Gaming operators charge a 30% TDS on winnings, and this is deducted at the source, ensuring that gamers need not worry about paying taxes separately.
Exemption and Deductions:
- There are no exemptions or deductions allowed under Section 80C of the IT Act for income from online gaming. The entire amount is fully taxed.
Surcharge on Gaming Income:
- Different surcharge rates apply based on income levels, with a 10% surcharge for winnings exceeding Rs 50 lakh and a 15% surcharge for income over Rs 1 crore.
Indirect Taxes - GST:
- Indirect taxes in the form of GST at a rate of 28% are applicable to entertainment events and services related to gambling, including casinos and race courses.
Taxation of Winnings Received in Kind:
- In cases where winnings are received in kind, the tax rate is applied to the market value of the prize, and the prize distributor must deduct tax before transferring the prize.
Responsibility of Gamers to Declare Winnings:
- Online platforms typically follow KYC norms, and it becomes the responsibility of gamers to declare their winnings as 'Income from other sources' while filing income tax returns.
Responsible Gaming and Tax Compliance:
- The article emphasizes the importance of responsible gaming, which includes timely payment of taxes on winnings to ensure compliance with Indian laws.
In conclusion, my expertise in online gaming and taxation allows me to provide a comprehensive understanding of the concepts covered in the article, facilitating informed decisions for individuals engaged in online gaming activities in India.