Income Tax provisions on winnings from online, offline games
(Casual Income)

The Income Tax Act, 1961 governs the Taxation of income in India. Under this act, there are various provisions that govern the taxability of different types of income. One such provision is Section 115BB of the Income Tax Act, which deals with the taxability of winnings from lotteries, crossword puzzles, card games, and other games of any sort or gambling or betting of any form or nature. This section applies to all individuals, HUFs (Hindu Undivided Families), AOPs (Association of Persons), BOIs (Body of Individuals), and any other person who receives such winnings.

As per Section 115BB, a flat tax rate of 30% plus surcharge and health and education cess @ 4% is applicable on income arising by way of winnings from any

• Lottery
• Crossword Puzzle
• Race including horse race (not being income from the activity of owning and maintaining race horses)
• Card Game and other game of any sort ( As per Section 24(ix) includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar games such as Kaun Banega Crorepati etc.)
• Gambling or betting of any form or nature

As per Finance Bill 2023, Sections 115BBJ have been introduced and from the Assessment Year 2024-25, the income earned by way of winnings in online games will not be taxed under Section 115BB of the Income Tax Act, 1961. It will be taxed under Section 115BBJ at the rate of 30% which will include surcharge and HEC as well. 

Deductions and Exemption 

• No benefit of basic exemption limit is available. In other words, if you have a single income in a year from winning of puzzle amounting to Rs 20,000 then the tax liability (before rebate under section 87A) shall be Rs 6,000.
• No deduction under Chapter VI-A (Section 80C to Section 80U) shall be allowed from such income.
• No deduction in respect of any expenditure or allowances in connection with such income shall be allowed under any provision of this act in computing such income as per Section 58(4).

Set off and Carry Forward

Set off and carry forward of losses are not available for these types of casual Income i.e., winning from lotteries, crossword puzzles, horse races, betting, card games, etc. This means that if a person incurs any losses from this source of income then that loss cannot be set off against the profit of the same source of income neither the loss can be set off against any other head of Income.  

Applicability of TDS

All the income earned through winnings from lottery, crossword puzzle, gambling, betting, horse racing and any similar nature were taxed under section 194B of the Income Tax Act, where the payer of such winnings would require to deduct TDS at 30% if such winnings exceed Rs. 10,000/-

Budget 2023 proposed a new provision to tax income earned from winnings from online gaming. This provision was introduced to tax such winnings from online gaming under section 194BA of the Income Tax Act, 1961 and was to come into effect from 1st July 2023.  The Finance Bill changes the date of applicability of Section 194BA to 01-04-2023 instead of 01-07-2023. Also, it amended that the TDS shall be deducted @ 30% on the net earnings without the threshold limit of Rs. 10,000/-

Example: Suppose you paid an entry fee of Rs. 10,000/- and won Rs. 1,00,000/-. The online gaming company would deduct TDS on Rs. 90,000/- (Rs. 1,00,000 – Rs. 10,000). The tax of Rs. 27,000/- (Rs. 90,000 * 30%) would be deposited to the government, and the remaining Rs. 63,000/- would be credited to your individual account.

Winning in Cash

If the winning from lottery etc. is in cash and exceeds Rs 10,000 then the person responsible for paying such amount should deduct TDS @ 30% on the whole amount under section 194B (or 194BB in case of winning from horse race) before making such payment.

Winning wholly in Kind or Partly in cash and Partly in Kind. If the winning is wholly in kind (such as car etc) or partly in cash and partly in kind then the person responsible for paying shall before releasing the winning ensure tax @ 30% has been paid in respect of such winning.

The tax shall be calculated on the basis of the market value of the winning such as car etc. along with the winning in cash. Generally, the amount of tax or shortfall in tax is collected from the winner and deposited to the government by the organiser.

Winnings from Online Games 

Online gaming has become a popular and booming industry in India. Whether playing games on a PC, gaming console, or mobile phone, online gaming offers a chance to have fun and win real money. However, many online gamers may not be aware of the tax implications of their winnings. According to the Income Tax Act, any game winnings are considered income and are subject to tax at 30% under Section 115BB. This includes the actual winnings and any bonuses, referral incentives, or other inducements offered by online gaming platforms. 

But As per Finance Bill 2023, Sections 115BBJ and 194BA have been introduced and from the Assessment Year 2024-25, the income earned by way of winnings in online games will not be taxed under Section 115BB of the Income Tax Act, 1961. It will be taxed under Section 115BBJ at the rate of 30% which will include surcharge and HEC as well. Moreover, the tax has to be deducted at source (TDS) u/s 194BA by the payer before paying the net winnings in case of online games to the recipient.

Online gamers must declare their winnings from online gaming in their income tax returns (ITR) under the head 'Income from Other Sources' u/s 115BBJ and pay the tax accordingly. The tax rules apply to all kinds of online games involving skill or chance.