Income Tax and GST on Online Gaming

INTRODUCTION

All work and no play makes Jack a dull boy. This quote has been taken seriously by millions of people across globe. The pandemic changed our life in positive as well as negative way. It boosted gaming market and people are now willing to pay to play. According to Mobile Premier League’s India Mobile Gaming Report 2022, gaming space in F.Y.2022 was USD 2.6bn and is projected to raise to USD 8.6bn in F.Y.2027.India became the largest consumer of mobile games globally in 2022. According to Lumikai Report, 15bn game were downloaded in India last year. UP, Maharashtra, Rajasthan, Bihar, West Bengal are top mobile gaming destinations and is highly increasing in Odisha, Punjab, Tamil Nadu, Puducherry, Himachal Pradesh. The numbers of gamers are expected to hit 500 million by 2025.

TYPES OF ONLINE GAMES

There are many games online available to pass the time. These are werewolf online, Skribbl, Psych! Outwit your friends, Ludoking, Scrabblego, UNO Friends, 8 ball pool, PUBG, Fornite, Snapchat Games, Rummy Circle, Dream 11, Halaplay, Fancy 11, Mobile Premier League and many more. Some games allow you to bet and gamble while others requires your skill and intelligence. Pandemic inculcated habit to play game in almost every person and therefore the gaming market expanded abnormally. As per taxation point of view games are divided into types-

1. Game of Skill– It involves skill, intelligence, strategies, mental and physical strength to win. It does not depend on sheer luck. Eg: Card games, Puzzle Games, Word games, Fantasy sports, Rummy, Poker.

2. Game of Chance– It involves betting, gambling where winnings are dependent on luck of gamer. Eg: Roulette, lottery, etc.

INCOME TAX ON WINNINGS FROM ONLINE GAMNES

80% of gamers are not aware of income tax rules and regulations on winnings from gaming, betting and gambling. They play games online and get worried when they receive income tax notice from department. According to provisions of Income Tax Act, winnings from lottery, card games, crossword puzzles or any sort of games are taxable at flat rate of 30% under the head income from other sources. The income tax norms governing winnings from gaming are-

1. TDS u/s 194B is required to be deducted @30% if winning amount exceeds Rs.10000/-

2. If gamer is NRI, then TDS is required to be deducted @30% plus applicable Surcharge and Cess.

3. The benefit of minimum tax slabs of Rs.250000/- is not available for charging tax.

4. No deductions u/s 80C and other sections are allowed from winnings amount.

5. Loses are NOT allowed to be set off against winnings.

6. Gamers are required to give PAN Numbers and bank account details to Company holding such events.

7. No expenses are allowed against winnings.

WHEN TDS IS DEDUCTED

TDS shall be deducted at the time of making payment of winning. If winnings is payable in instalments, then tax shall be deducted every time the instalment is paid.

WININGS IN CASH OR KIND

In Kind– TDS shall be deducted on market value of winnings in kind and deductor has to pay TDS and release winnings only after payment of tax. For Eg: Divya Agrawal won BMW Car on a game show, then person organising the show is required to deduct TDS on market value of car before delivering Car. The TDS amount can be either paid by Organiser or he can take from winner and pay to the credit of Government.

Both in Cash and Kind-If cash part is sufficient to pay TDS, then winnings shall be released after deduction of TDS, otherwise winnings shall be paid only after deduction of TDS.

CAN ASSESSEE GET REFUND OF TDS DEDUCTED

You cannot claim refunds against TDS payment u/s.194B. It is because winnings are always taxable at the flat rate of 30% plus applicable surcharge and cess and no loss, expenses, deductions are allowed against winnings. Therefore you cannot claim refund against TDS deducted.

LOSSES ARE NOT REQUIRED TO BE SETOFF

No loss can be set off against winnings from gambling, lottery or gaming. For Eg: If Divya wins Rs.2 lacs playing online game but loses Rs.5lacs, then her net loss is Rs.3lacs. Practically and logically if a person bears loss he is not required to pay tax but in case of, winnings from gaming, loss of Rs.5Lacs will not be allowed to be set off against gains of Rs.2Lacs. Therefore you have to pay tax on Rs.2Lacs @31.2% which comes to Rs. 62400/-. Millions of taxpayers are receiving notices that have incurred losses and not paid tax.

GST ON ONLINE GAMING

OUR COMMENTS

The gaming industry is showing remarkable growth and is expected to grow in exponential form. In years to come the industry will jump to next growth level because of Metaverse. Metaverse is consumer-centric experience. It is medium of communication that will bridge physical and virtual experience. The Government has urged online gaming players to pay tax and file updated return if required. Many have received notices from department and scrutiny cases has been initiated against them. Financial Tree Company helps you in filing, scrutinizing your returns and helps in handling notices received from income tax department.

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The above comments do not constitute professional advice. The Author can be reached at [email protected]. My name is CA Divya Agrawal and I am Practising Chartered Accountant, CEO and Founder of FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company). We also upload educational videos in You tube and name of our channel is FINANCIAL TREE COMPANY. Our aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.