As per the latest budget announcement gamers are required to pay tax only when they make net profit .In the latest budget ,It is proposed that a person has tax liability in the following scenario.
- TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year.
- TDS would be without the threshold of 10,000.
Do you play a rummy game after completing KYC by giving a PAN card , bank account and transferring money through a bank account? You should know the applicability of Income tax on online games.
What is an Online Gambling / Online Rummy Game?
A person playing a rummy game with the help of an online platform can be included in the online game category as per Sec. 115BB of Income tax act.1961.Surveys conducted in 2020 have revealed that there are approximately 300 million online gamers in India and the number is going to increase rapidly in coming years. With widespread use of internet casinos companies have started casino websites offering an enthralling environment to play in.There is much litigation on gambling but income tax does not restrict anyone to earn from litigated sources. It only says “Please Pay Tax”. Therefore online gambling is also taxable.
Everyone knows that they have to pay tax if they win an online game, but not many people know how much tax they have to pay on top of the amount.
Online gaming which comes under a 30% tax slab has only given bad experiences to many people. 95% of people who have used gaming apps have only experienced financial loss.
Paying income tax on top of those losses is beyond the reach of the common man. A relaxation is provided by the Income tax department on loss incurred by gamblers while performing.
Example
1.Before proposed Budget.
A person starts the game by investing Rs.10000.and Suppose you win the first 3 games and get a prize of Rs.30000. After that suppose you play 2 games and lose 40000 rupees.
From the point of view of a common person, the player has incurred a loss of Rs.10,000. But according to the income tax act you are liable to pay tax above 30000 rupees. Ie, above Rs.30000 you have to pay 30% tax. About 9360 rupees will have to be paid as tax.That means you are liable to pay tax of Rs 9360 on a loss of Rs 10000.
- Based on the proposed Budget.
A person starts the game by investing Rs.10000.and Suppose you win the first 3 games and get a prize of Rs.30000. After that suppose you play 2 games and lose 40000 rupees.
From the point of view of a common person, the player has incurred a loss of Rs.10,000.It is proposed to provide for TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year. Ie, you don’t have to pay tax on such a loss.
How much tax to be paid
Income from online games is taxable under head Income from Other sources and is taxed at a flat rate of 30%+ 4% Cess i.e. 31.2%. Assessee is not allowed a minimum exemption limit of 2.5lakhs available to other assessees.
TDS Applicability
It is proposed to provide for TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year. If the Prize money exceeds Rs 10,000, then the winner will receive the prize money after the deduction of TDS @31.2% u/s 194B . The prize distributor is liable to deduct tax at the time of payment which will be displayed in Form-26AS and AIS at Insight- Income Tax. The assessee can take credit of TDS while filing return of income.
Can I set off a loss against Profit?
No deductions or expenditure or loss incurred to earn income from gambling is allowed. The winnings are taxable at Flat rate of 30% + applicable Surcharge and Cess.Please refer the above example for more details.
What to watch out for when playing online games?
- Only participate in the game with a proper plan.
- Financial control should be in place
- The amount of loss should not be such as to disrupt normal life
- Accurate tax planning is required.
- Make sure that tds is deducted above the winning amount.
- We should also ensure that Tds has been issued in our name
Online games are good. If you have a little more attention. Otherwise the online gaming companies or the Income Tax Department might be waiting to swallow you up.
