The Indian Premier League (IPL) is one of the most popular and lucrative sports leagues in the world, attracting millions of viewers and generating billions of dollars in revenue.
In recent years, fantasy games based on IPL have also gained immense popularity among fans, who can participate in online contests and win cash prizes by predicting the performance of their favorite players.
Taxation of winnings from online games was always subject to legal debate and is considered as a contentious issue.
Prior to the 2023 budget announcement, gaming operators like Dream11, MPL were required to deduct tax at source (commonly know as TDS) for winnings above the threshold of Rs 10,000 on a per game basis.
This scenario changed with the amendments to Sections 194BA and 115BBJ of the lncome Tax, 1961 by the budget 2023 announcement which removed the threshold and prescribed a rate of 30% to be levied on the net winnings.
Prior to the amendment, a user could avoid tax deduction by ensuring multiple lower individual winnings (below the threshold of Rs 10,000). Without TDS, the responsibility of tax payment fell entirely on the user who had to file the return, calculate their net winnings and pay the tax at the end of the year. This has limited compliance onus on the gaming platforms.
With the removal of the threshold in the 2023 budget, your fantasy winnings are subject to 30% TDS irrespective of how lower the amount is.
So the next time you have a net winning of say Rs.100 on a IPL fantasy game, you will only receive Rs.70 upon withdrawal. Again this Rs. 70 may also be subject to surcharge, cess and other deduction based on your slab rate when you file a return.
Net winnings are calculated upon deducting game entry amount and on tallying individual wins and loss at multiple games at the the time of withdrawal.
The payment of TDS can however be deferred till the time of actual withdrawal from the wallet of a gaming platform to the bank account or till the end of financial year. So in the example above you may see full Rs. 100 in your wallet but will receive only Rs. 30 when you withdraw. But this changes if you don’t withdraw the amount by the end of the financial year. The gaming platform will deduct TDS on the winnings in the wallet remaining at the end of March.
Further, this is regime could be beneficial to those who continue to play without withdrawing as TDS is only applicable at the time of withdrawal or at the end of financial year.
The new requirements have come into effect on April 1, 2023.