Playing online games for money during Diwali? Know how your winnings will be taxed

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Online games with players connected via the Internet are becoming popular. Apart from spending time for fun, these games also require certain skills to win.

While many young people enjoy spending time playing online, some of them become addicted to it and stay hooked online for a long duration, which often interferes with their studies and other works.

Things can get worse when online games are played for money, which can even ruin the lives of young people who are already addicted to online games.

Even though online gambling requires considerable skill to win, the laws do not place it on the same level as land-based gambling, resulting in gambling status for online gambling played for real money.

Thus, online games involving money are treated as lottery, horse racing, sports betting, gambling, etc.

As a result, online gambling winnings are taxed at the highest tax bracket without any of the benefits of deductions and exemption limits.

“In case of winning on websites etc., if the prize exceeds Rs 10,000, the winner will receive the prize after deduction of TDS @ 31.2% (30% tax plus applicable tax) u/s 194B” , said Archit Gupta, Founder and CEO, Clear.

Gupta lists the following tax rules applicable to gambling winnings:

  • The tax will be imposed on all money earned and no expenses incurred in playing online games are allowed as a deduction from gambling income.
  • No deduction under Section 80C or 80D or any other deduction/allowance is allowed from gaming income.
  • The ceiling on the benefit of the basic exemption and the rate of the income tax slab is also not applicable to this income. The entire amount received will be taxable at a flat rate of 31.20%. So even if a person has no other income, tax will still be deducted from gambling income.
  • The onus is on the taxpayer to accurately report gambling income.
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