The recent ban on online paid games due to addiction and financial concerns has impacted platforms like fantasy cricket, rummy, and poker significantly. Despite this, those who have earned winnings from online games in FY25 must file their Income Tax Return (ITR) by the September 15 deadline. It’s crucial to understand how online gaming income is classified and reported to ensure compliance.
Understanding the Classification of Online Gaming Income
Online game winnings are not categorized alongside salaries, capital gains, rent, or business profits. According to the Central Board of Direct Taxation (CBDT), these earnings fall under the ‘Income from Other Sources’ category, similar to lottery prizes and gifts.
Key Compliance and TDS Regulations
Game platforms now face rigorous compliance rules. Under Section 194BA, Tax Deducted at Source (TDS) applies not only to withdrawals but also to the closing balances in accounts. These are linked to players’ PAN details and reported directly to the tax authorities.
Even individuals with income below the taxable limit are required to file an ITR if TDS has been deducted. Rule 12BA mandates that filing is necessary if TDS or TCS exceeds Rs 25,000 in a financial year.
Insights from Tax Professionals
Tax expert Sandeep Sehgal, Partner at AKM Global, highlights the importance of reporting winnings from platforms like fantasy sports and e-sports under ‘Income from Other Sources.’ These earnings face a 30% tax rate without any reductions, and losses can’t be offset. Using the correct form—ITR-2 or ITR-3—based on one’s income profile is crucial. Proper disclosure ensures avoidance of notices from the tax department.
The Importance of Timely ITR Filing for Online Winnings
As the ITR deadline approaches, it’s time for all those involved in online gaming to verify their tax documents, report winnings accurately, and file returns promptly. This practice helps in avoiding penalties and unnecessary scrutiny from tax authorities.
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