Recently, the government has imposed a legal ban on online money gaming, after which many ‘Real Money Gaming (RMG)’ companies have stopped these games on their platforms. But if you have won any amount from online gaming in the last financial year, then you will have to pay tax on it. Even though it is now closed, the tax on the earnings from it is still applicable. Let us know what the rules are on such income under the Income Tax Act and how much tax you will have to pay on your winnings.
Legal and illegal income in the eyes of the law
Vivek Jalan, partner, Tax Connect Advisory Services, explains that the Income Tax Act has nothing to do with the legality of a business. Section 2(24) of the Income Tax Act defines the term ‘income’ and includes any kind of income. This means that both legal and illegal income are taxable in the eyes of the law. Therefore, even if online gaming is banned, the earnings from it will come under the purview of tax.
30% tax on online gaming
If you think that you will not have to pay tax on online gaming because it is closed, then you are wrong. In the financial year 2024-25, net earnings from online gaming have been considered as taxable income. It is directly taxed at 30% under section 115BB.
Understand the math with an example
Suppose you deposited ₹1,000 in your gaming wallet and you won ₹30,000. In such a situation, your net winnings will be ₹29,000. The gaming company will have to deduct 30% TDS on this ₹29,000 before sending this money to your account. So, ₹8,700 will be taxed on ₹29,000.
Will have to tell in ITR also
Even after the tax is deducted, your tax-related responsibility does not end. While filing ITR (Income Tax Return), you have to disclose this winning amount. Earnings from online gaming have to be shown in ‘Income from Other Sources’.
If you are a salaried taxpayer, you can use the ITR-2 form. If you also run a business, you have to fill out the ITR-3 form.
The TDS deducted on your winnings will be reflected in your Form 26AS, which you can adjust while filing ITR. So, if you have earned money from online gaming, then definitely mention it in your ITR. If you do not do so, you may have to face legal action in the future.