Making gains via gaming apps during the lockdown? Don’t forget the tax implications

“Earlier there was a sharp evening peak in gameplay, from around 7 PM to midnight. But, currently, we are seeing sustained heavy usage throughout the day. Many users who had never tried online poker (preferring to play solely with friends in person) have started playing online, and a percentage of them will realize that they enjoy playing online just as much, or perhaps even more,” says Sudhir Kamath, CEO & Co-Founder, 9Stacks. This online gaming company has seen 100 per cent increase in new user registrations, even as users who log in and subsequently play has increased by 40-50 per cent.

Gaming apps, involving real money, offer the facility of transferring the amount to your bank account or digital wallet.

Family game nights of Tambola are keeping Indian households busy during weekends. Since physical meets are off the table, all the monetary transactions for the games are being done through internet or mobile banking transfers or via digital wallets.

A reader of Moneycontrol stated that he made Rs 7,900 by playing games during the past month. Another online poker player, who was involved in fantasy sports earlier, started taking baby steps in online poker games during the lockdown period. Recently, he won Rs 33,750 in a poker tournament. But he earned an aggregate amount of more than Rs 1 lakh in online poker that he indulged in only during the lockdown.

Taxing gains

While you seek pure pleasure during the lockdown, the taxman would be tracing these transactions to your account, which attract a steep tax rate of 30 per cent (additional 1.2 per cent cess applicable).

"Winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever are taxable as ‘Income from other sources’ under section 115BB of the Income Tax Act, 1961," says Ameet Patel, partner at Manohar Chowdhary and Associates.

If you are fretting a tax return, then you can be assured that the tax has already been deducted and so you need not worry. “If a company makes the payment to you, it would deduct 30 per cent of the amount as tax at source. The transaction doesn’t end there. You will have to declare the amount in your tax returns,” says Mumbai-based chartered accountant Mehul Sheth.

The TDS deduction of 30 per cent would be made only if the amount exceeds Rs 10,000.

That is precisely why some gaming platforms have a threshold limit for allowing funds transfer.

But, what if the amount is lying in the wallet of the gaming app? Such an amount wouldn’t reflect in your account statement, as you haven’t won it in monetary terms. The gaming apps too ask you for the permanent account number (PAN) and bank details only when you wish to transfer the prize money to your bank account.

"Amount remaining unused in the User's Game account or Winnings Account on the date of deactivation or deletion shall be transferred to the User's bank account,"  states the terms and conditions of Dream11, a fantasy sports platform, which automatically transfers the money after 335 days, if the user doesn't place a request for withdrawal.

Software professional Siddharth Gupta, who won Rs 17,500 through a game last year says, “Though the company has deducted some amount as tax, I didn’t bother to disclose this while filing my tax return. I wasn’t aware.”

However, people like Siddharth are forgetting that the money has been deducted as TDS, and so the same would be reflected against their PAN numbers and can be traced back. Your Form 26AS or annual tax statement will contain the details if the company declares the amount in its TDS from. All the taxes deducted by either your employer, bank or any landlord would be reflected in your annual tax statement. Checking that is also the first step to filing your tax return.

“The gaming company doesn’t mention upfront that the amount won is taxable. We need to read the terms and conditions. But who reads them?” asks Mumbai-based Rohan Dhulla, who has been playing games that offer the option of encashing the prize amount as a shopping voucher instead of hard cash.

So, can you avoid the tax by opting for such gifts in kind? Not really, as the market value of such gifts have to be considered.

"If winning amounts are being paid partly in cash and partly in kind, then, even if the value is less than Rs 10,000 individually, TDS is to be deducted taking into consideration the entire value of the winning amount," says Patel of Manohar Chowdhry and Associates.

Even if you aren’t supposed to file a tax return due to the basic income tax exemption limit of Rs 5 lakh, you would still have to pay tax on the amount you win through games. You cannot claim the deductions applicable under Section 80 (C), 80 D etc. and hence no refund would be paid to you, even if you didn’t have any other income.

The benefit of adjusting losses isn’t allowed for money lost in such games. You can’t set off the amount you bet in the first place to win. "No expenses can be claimed against these winnings as per section 58 of the Income Tax Act, 1961. The provisions of the Income Tax Act, 1961 do not permit set off and carry forward of losses against gains from winning from lotteries, crosswords, puzzles, card games or other gambling," elaborates Patel.

(Note: The terms and conditions of Dream 11 have been added in the story)