Fantasy Sports and their Taxation

A Fantasy Sport is a game where participants assemble imaginary teams, using real players from different professional team. These teams compete based on statistical performance of those player’s players in actual games.

The following are few Fantasy game Apps in India

1. Dream 11

2. Gamezy

3. My11 Circle

4. Paytm for Games

5. My Team 11

6. MPL and Etc.

The craze of Fantasy Games has sky rocketed after the entry of App like Dream 11 and My 11 Circle. According to FICCI-EY report, the Indian Fantasy Sport Industry is slated to touch $ 2.5 Billion in 2022- Dream 11 posted a 2.6x increase with revenue from operations to Rs 2070.4 Crore in FY 20 from Rs 775.5 Crore in FY 19.

High popularity of IPL game (Cricket) in 2008, along with low cost plans and high penetration of mobile phones, the growth of Indian fantasy sports betting industry is sky rocketed in last 5 years.

The number of Fantasy operators has increases from 10 in 2016 to 150 in 2020. The number of Fantasy Sports users increased 50X from 2 Million in 2016 to over 100 Million in 2020.

Fantasy Sports and Legal Proclamations

• Betting and gambling are regulated by The Public Gambling Act, 1867 (PGA), which prohibits all forms of gambling activities and betting on games of chance. The PGA has no provision for online gambling, so no specific law bars online gambling in India. Online gambling in India can be in the form of crossword, quizzes, card games or fantasy sports.
• In regulating platforms offering such games, Indian laws differentiate between betting on games of chance and staking on games of skill
• Fantasy sport is a game of skill and not game of chance.
• Various court have given reasons on users exercise of skill based superior knowledge, judgment and attention plays a artificial role in analyzing the element of skills involved in fantasy Games.
• The high court of Punjab & Haryana held Dream 11 format of Fantasy Sport be game of skill in the Varun Gumber case
• Bombay High Court also recognised that the same format of fantasy sport was a game of skill.

Taxation of Fantasy Games

•  Fantasy Sports and online betting winning is taxable under section 115 BB of Income Tax Act 1961, under the head “Income from other Sources”.
• It is a stand alone Special Provision.
• Section 58(4) of the Income Tax act 1961 provides that no reduction or expenditure is allowed to be claimed against such income.
• Income tax on prize winning money from this fantasy sport is taxable @ 30%- excluding cess and surcharge.
• The plat form paying out the winning money will have to deduct tax @ Source u/section 194 B of Income Tax Act 1961 @ 30% if the prize winning money exceeds Rs 10,000/-
• Tds deducted by platform at the time of payment will be displayed in form 26AS of the user- The user can take credit of TDS while filing his/her Income Tax.

Example 1

X bets Rs 1000/- in a fantasy sport contest online platform and won Rs 5000/- prize money. The entire RS 5000/- is taxable @ 31.2% and Rs 1000/- paid for entry fees to participate in the contest shall not be claimed as deduction.

Example 2

X bets for 5 fantasy sport contest in a single live match and pays Rs 1000/- for each contest. He loses in 4 contest and won Rs 5000/- from 1 contest. He has to pay income tax for Rs 5000/- @ 31.2% and no deduction of expenditure to earn such income u/s 58(4) is allowed.

Please be noted that, X has break even in this case, and no money has earned by him additional.

• Thus online participants of fantasy games should be mindful of the tax implications while filing their returns.

GST on Fantasy Sports

• Gaming Plat form should pay GST as they qualify as supplier.
• The registration fee deposited by every player, the portion of these fees, say 10% is transferred as platform fee, and this is revenue for the online operator.
• The remaining 90% is the actionable claim, is the prize money and transferred to winner on winning the same.
• The auctionable claims, at present, which are for game of skill, are not covered by specific valuation rules (Rule 31 A0 specified under GST rules 2017, there fore falling under exception under GST Act 2017, for GST valuation.
• Schedule III read with Section 7 of CGST Tax also provides for activities which are exempted from levy of GST as such activities are not considered as Supply of Goods and services, All Auctionable claims fall under activities mentioned in Schedule III.

The immense popularity and high growth in money terms has made the GST council to constitute group of ministers (GOM) to examine whether any change in the legal provision is required for valuation of services provided by online games.

They need to examine the following areas

1. Examine the tax liability

2. Clarification whether the game of skill or game of chance.

3. Taxable values of GST- i.e. gross value including prize money vs. only platform fees.

4. Tax rate, single or double, 28% or 18%.

This council is set in May 2021 will send their recommendations in 6 months; we will then have more clarity on the GST applicability on the fantasy sports.