We all dream of trying our luck in Kon Banega Krorepati (KBC), which obviously needs no introduction. KBC has been our favorite prime time watch. Some of us might have tried to won money from it. The luckiest ones might have won a lakh or a crore too. But is this money out of the purview of tax? India is a country where taxes are levied on all forms of income. This ranges from profession to money earned through stock market or even KBC. In this article, we discuss the taxing scheme on money earned through online games such as fantasy sports.
What are fantasy sports?
Fantasy spots are popular now thanks to their marketing strategies and big advertisements. When fantasy sports such as online rummy and dream 11 were alleged as illegal on the ground of being constituting as gambling, the owners of these games contended that these games were perfectly legal. They buttressed their contention on the character of game of skill. The test of game of skill is what distinguished these games from gambling.
Game of skill involve the application of mind where the player chooses his team and the result of the game is not dependent on mere happenings of an event. A game of chance constitutes gambling and as a result depends on mere chance, i.e., the happening of an event. Courts have held that dream 11 is a game of skill and not of chance. Therefore, it is not gambling.
Taxes on fantasy sports
Section 4 of the Income Tax Act, 1961 (Act) provides for the basis of charge for taxing of income. It states that any income which has been accrued or received by the assessee in the previous year shall be charged in the assessment year. Furthermore, Section 143 of the Act provides for various heads of income for the purpose of computation of total income. It includes income from –
- house property
- profits & gains of business or profession
- capital gains
- and income from other sources.
As far as the taxability of fantasy online gaming is concerned, the same falls under the ambit of income from other sources under Section 56. Section 56 of the Act provides for the basis of charging taxes on any income that doesn’t fall under the first four categories mentioned under Section 14. Sub-section (2) of Section 56 provides that any income which is earned from the activities mentioned under Section 2(24)(ix) shall be chargeable to tax which includes winnings from lotteries, crossword puzzles, races, card games and other games of any sort or from gambling or betting.
Section 115BB(1) of the IT Act states that such income mentioned under Section 2(24)(ix) shall be taxed at the rate of 30%. It is mandatory for the assessee to disclose the income earned while filing the return. According to section 194B of the Income-tax Act, 1961, the person responsible for paying to any person any income by way of winnings from lotteries or crossword puzzles, in an amount exceeding five thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force.
The following are list of sources from which money is taxable:
- Lottery (online and offline)
- Crossword puzzles
- Race betting
- Card games
- Gambling (online and offline)
- TV shows, including game shows, quiz shows, singing competitions etc.
- Fantasy sports
If a person fails to make TDS payments under Section 194B he/she is punishable with imprisonment. The punishment is a minimum of 3 months and can extend up to seven years along with fine.