Are You Liable for Income Tax on Your Video Games Income?

India’s booming gaming market, worth $ 930 million, is the largest in the world. In the recent past, online rummy, poker, and other real-money internet games have experienced rapid growth. Gamers who earn money from online gaming must pay taxes on their earnings. The popularity of professional gaming has increased over the years, with some players making millions of dollars.

As the video and gaming industries have flourished over time, so has the state’s taxation on these services.

Earning Real Money from Online Games

Online games typically work on a subscription basis. The majority of these games are free to download, and users are only charged if they opt to access a premium account or in-app purchase items. While some games are played solely for enjoyment, others allow players to earn real money.

During the COVID pandemic, online gaming in India has allowed many players to earn money in the comfort of their homes. Poker, rummy, sports activities like cricket and football, quizzes, and battlefield games are among the games from which players can earn real money. Anyone can make money by playing online games has enticed the younger generation to become avid gamers.

Taxation Criteria on Online Games in India

Income earned from online gaming is taxed under section 115BB of the Income Tax Act, which comes under the heading ‘income from other sources’ when submitting income tax returns. Winnings from betting, gambling, card games, or any other games are also included. As a result, winnings from online gaming are included in this category.

Winnings from online games are taxed at a fixed rate of 30 percent, apart from the cess. Without the advantage of the basic exemption limit, the net rate after cess is 31.2 percent. It must be emphasized that the individual distributing the prize money must deduct the tax at the source before transferring the winnings; this is a TDS provision under section 194B that only applies when the winnings are greater than ₹10,000. There are no deductions or expenses that can be claimed against such revenue.

Gamers should be aware that they must report any gains on which TDS was deducted on their tax returns. The gaming companies gather the gamer’s PAN and bank account information; nevertheless, the gamer’s obligation does not end here. Reporting of such earnings will be required when the gamer’s tax returns are filed.

Online games such as tombola, ludo, chess, rummy, and several others have gained immense recognition in recent years. Most gamers require participants to either purchase tickets or deposit/pay a certain amount. There is an internet platform that manages the game and receives payment for it. As there is a platform offering services to its participants, the event is taxable.

Apart from these online games, you can also earn real money from numerous state lotteries. One of them is the Sikkim State Lottery, for which the winner must possess a certified domicile of the state. People can check the results of these lotteries online at Dhankesari. The government of India has taken a significant step in this lottery system, which provides excellent support to the poor.

Handling taxes on Online Games

The Supreme Court and the legislature have agreed on the taxability of the income derived from online gaming platforms for both corporations and players. Still, some concerns need to be addressed by the legislature and the tax department.

If a player cannot pay his or her tax, in that case, he or she may be subjected to a tax investigation sometimes known as an ‘audit.’ It is preferable to hire a Certified Public Accountant or a lawyer, having expertise in gaming taxation. Many organizations already employ accountants to help their players with tax difficulties.

So as a professional gamer, while negotiating the terms of your next contract, you should consult a tax advisor to guide you about the compensations you can receive.