12/04/2018
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Are you playing online card games? is getting real popular among the professional Poker players.
We bring to you an analysis of the tax positions for your online winnings.
Query 1 - If you can set-off the buy in token amount or subsequent losses from your earlier winnings, i.e. Is it legally allowed to pay taxes on net-winnings in case of an online card game professional stint.
Our answer:
We would like to inform that the online Poker winnings are taxable as Income from other sources under section 56 of the Income Tax Act 1961. These winnings can not be said to be a part of a business or profession, as they are explicitly mentioned as Income from Other Sources in Indian Tax legislation.
The section 58(4) further disallows any expenditure claims from the gross winning. Hence, if you win 3L after paying a buy in token of say 5K and subsequently loose 1L on a bad day, then your net income would be 3L - 5K - 1L = 1.95L. However, you are not allowed deduction of 1L and 5K as per section 58(4). The taxes would be charged on gross winning amount, which is 3L in the instant example.
Also, as per section 115BB, any such income from online card games is not allowed to have benefit of the tax slab rates. Such income is taxed at a higher standard rate of 30%. As an example, you currently have a slab rate of 0% taxes on first 2.5L, 10% taxes on 2.5L to 5L, 20% taxes on 5L to 10L, and 30% on income more than 10L. Say you made a gross winnings of 6L in an online poker session. Utilizing the tax slab benefit, your taxes would be calculated as 0 on first 2.5L, 10% on next 2.5L and 20% on next 1L i.e. a total amount of 45K. However, this slab benefit is not available for winnings from online Poker game. Hence, your taxes would be calculated as flat 30% of 6L gross winnings, i.e. 6L x 30% = 1.8L.
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Query 2 - TDS provisions applicable for online poker game winnings
Our answer:
The TDS provisions for winnings from online Poker games are present in section 194B of Income Tax Act 1961. The TDS is applicable at 30% rate. However, this is only to be deducted by the payer at the time of paying the money to you. So while you win in Poker games and keep the money in your online Poker website account only, then no TDS shall be deducted, unless you take the money out. Let me give an example here; Say you won 5L and subsequently you lost 3L. Now you withdraw 2L balance in to your bank account. Then TDS to be deducted by the poker hosting website would be 30% of 2L only. They would not deduct the TDS on gross winnings of 5L. However, you would be under a liability to pay taxes on balance 3L of your gross winning at the time you file your tax return.
Also, there is a threshold limit of 10K. In case you withdraw an amount upto 10K only, there shall be no TDS deducted. However, you would still remain liable to settle your taxes at 30% of amount withdrawn (i.e. 10K) at the time of filing your tax return.
Now comes the part of Indian tax law, which is open to different interpretations. Most of the tax experts, including us, interpret the 10k limit on a per year basis. However, we have noticed that the online poker hosting websites follow a different interpretation of TDS deduction. They offer you 10K withdrawals for each day without any TDS being deducted. Although the limit of 10K is per year, however, the websites are interpreting this provision differently and are allowing remittance of amount - without any TDS deductions to players who withdraw only 10K per day.
It may be noted, that the liability to deduct TDS is on the poker hosting website and if they fail to do so, it is of no harm to you personally. Indian tax authorities can not hold you liable for non deduction of TDS by the poker hosting websites. You would anyways be paying taxes at 30% directly to Income tax department upon filing of your tax return. So you can take this benefit until the games' servers have an altered interpretation and start deducting TDS for any withdrawals more than 10K on per year basis.
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