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The online fantasy sports industry, with platforms like Dream11, MPL, and My11Circle, has experienced exponential growth, captivating millions of users. However, it’s crucial to grasp the tax implications associated with winnings from these platforms. In this blog, we delve into the exciting world of tax on winnings from Dream11, MPL, and My11Circle, offering an engaging and informative perspective.
Taxation on Winnings:
Section 194BA of the Income Tax Act mandates that earnings above Rs. 10,000 from online gaming apps, including fantasy sports platforms, fall under the “Income from Other Sources” category and are subject to a 30% Tax Deduction at Source (TDS) on the net earnings. When users achieve victories on these platforms, the system deducts tax at the source before transferring the winnings to their bank accounts. It’s important to note that TDS is calculated based on the combined value of cash and non-cash components in case the prize comprises both elements. However, the deduction is applicable only to the cash portion of the winnings.
If users choose not to withdraw their winnings, a TDS deduction occurs at the end of the financial year. Importantly, earnings from online games are not subject to the higher rate of TDS specified in Section 206 AB, even if users don’t file an Income Tax Return (ITR).
Legal Status of Online Gaming Platforms:
Determining the legality of online gambling in India is a nuanced endeavor. While there are no federal laws prohibiting online gambling, the Public Gambling Act of 1867, enacted before the advent of the internet, prohibits placing wagers on games based on chance. However, it allows exceptions for games of skill and lotteries. The Information Technology Act of 2000 does not specifically address online gambling.
States possess the authority to develop their own laws governing or banning online gambling activities. Some states, such as Nagaland, Meghalaya, and Sikkim, have established licensing regimes and gaming laws. Nagaland even has a licensing board for sports betting and online casino gaming. In contrast, states like Andhra Pradesh, Telangana, Tamil Nadu, and Karnataka imposed temporary bans, which were later deemed unconstitutional by their respective High Courts. The Ministry of Electronics and IT is currently reviewing a legislation draft that aims to address concerns like preventing minors’ participation in online gambling activities .
Tax Treatment and Reporting:
Understanding the tax laws regarding winnings from fantasy sports apps like Dream11, MPL, and My11Circle is essential. Section 115BB of the Income Tax Act declares that winnings from lotteries, crossword puzzles, races, or card games are categorized as “income from other sources” and are subject to taxation . This implies that regardless of the participation fee paid, the tax is calculated solely on the amount won.
For instance, suppose a user paid Rs. 1,000 to participate in a fantasy sport and won Rs. 10,000. The tax would be levied on the winning amount (Rs. 10,000), with no deduction for the participation fee . When a user’s winnings on platforms like Dream11 exceed Rs. 10,000, a 30% tax is deducted at source. The remaining amount, after tax deduction, is credited to the user’s account as “winnings.” Users who have verified their PAN card receive a TDS certificate. The tax deduction made by fantasy sports companies is reflected in Form-26AS. Notably, cash bonuses offered by these platforms are typically excluded when calculating TDS .
Recent Tax Law Changes:
Effective from April 1, 2023, a new TDS law has been introduced. Under this law, TDS is deducted at 30% of the taxable amount during withdrawal. The taxable amount is determined by calculating the difference between withdrawals and deposits made by the user . Users are encouraged to refer to the government notification provided on the Dream11 help page or consult tax experts for detailed information on this new TDS law.
In conclusion, the tax implications surrounding winnings from online fantasy sports apps like Dream11, MPL, and My11Circle are of paramount importance for users. As per current tax regulations, a 30% TDS is deducted on winnings exceeding Rs. 10,000. Staying informed about these tax regulations and reporting earnings accurately is essential. As the legal landscape continues to evolve, users should remain updated with the latest regulations and seek professional advice when needed. Remember to engage in responsible gambling practices and only allocate an amount that is affordable to lose.