The Indian Premier League (IPL) is currently underway, and many people are earning money through sports betting apps, such as Dream11, My11Circle, etc. However, few individuals are aware of the income tax rules concerning earnings from these sporting apps and the potential penalties for not reporting this income to the tax department.ET Wealth online decodes the income tax rules applicable to this casual income and the penalties for failing to pay tax on it.
Earnings from sports betting and online gaming are casual income
According to tax experts, winnings from lottery, online gaming, online sports betting, etc., are considered casual income for income tax purposes.
Suresh Surana, a practising chartered accountant, says, “Casual income under the Income-tax Act, 1961, refers to the income that is received on an irregular, non-recurring basis. Such income is characterised by its uncertain and non-recurring nature and is typically derived without any systematic or organised effort by the recipient.”
Hemen Asher, Partner, Bhuta Shah & Co LLP, says, “Casual income is irregular and non-recurring in nature and also includes any income which is not captured under any other head of income. Examples of casual income include winnings/earnings from crossword puzzles, lotteries, races (including horse races), games in the nature of betting/gambling, card games, game shows and online gaming, etc.”
Under which section are winnings from online gaming and sports betting taxed?
Surana says, “Such income is taxable under the head income from other sources, as per Section 56(2)(ib) read with Section 2(24)(ix) of the Income Tax Act. In the ITR form, you are required to disclose the earnings under the section ‘income from other sources.'”
Income tax rate for winnings from online games
The Income Tax Act mentions a special tax rate at which winnings from online games, sports betting, and other casual income are taxed.
Surana says, “The taxation of casual income is subject to a special tax rate. It is taxed at a flat rate of 30% under section 115BB/115BBJ of the Income Tax Act. The applicability of the section depends on the source of income. Additionally, a surcharge and health and education cess will be applied to the special rate.”
According to the Income Tax Act, Section 115BB is applicable to income which includes winnings from any lottery, crossword puzzle, or race, including a horse race or card game and other games of any sort or from gambling or betting of any form. On the other hand, Section 115BBJ applies to winnings from online games.
Tax deducted at source (TDS) will also apply to the casual income. Surana says, “TDS at the rate of 30% applies to such winnings, as per Sections 194B/194BA/194BB of the Income Tax Act if the winnings amount exceeds Rs 10,000 per transaction. It is pertinent to note that such threshold of Rs. 10,000 only applies in case of Section 194B and 194BB, as no threshold limit is applicable in case of Section 194BA w.r.t. winnings from online games.”
Can you claim any deductions on income in the form of winnings from online games?
Currently, the Income Tax Act has two tax regimes: the old and the new. The old tax regime offers various deductions to individual taxpayers. However, not many deductions are available for taxpayers in the new tax regime.
Surana says, “No deductions for any expenditure or allowance are permitted against such income i.e., winnings from online games etc. Further, taxpayers cannot claim any deductions, such as sections 80C, 80D, etc., from casual income in any tax regime.”
How are winnings from Dream11 and online games taxed?
Asher says, “The winnings earned from online gaming apps and betting apps are taxed on a gross basis. The benefit of the basic exemption limit is also not applicable to the casual income. This means that even if your total income, excluding winnings from online games and fantasy games, is below the basic exemption limit, ITR filing is mandatory to pay tax on the casual income.”
Asher explains this with an example. Suppose your total income is Rs 2.5 lakh, and you additionally have winnings from Dream11 amounting to Rs 50,000. Your total income, including winnings from Dream11, is Rs 3 lakh, which is below the basic exemption limit of Rs 4 lakh under the new tax regime for FY 2025-26. However, you are required to pay tax on winnings of Rs 50,000 from Dream11 at a special tax rate of 30%, in addition to health and education cess, and file your ITR as per the income tax rules.
Penalty for not disclosing casual income in ITR
Casual income in the form of winnings from online games is taxable in the hands of a taxpayer. If the winnings are not disclosed, the taxpayer may face some penal consequences.
Surana says, “Upon detection, penalties can be levied under Section 270A for under-reporting or misreporting income. The penalties may range from 50% to 200% of the amount of tax payable on such disclosed income. Further, interest under Sections 234B and 234C may apply to late advance tax payments. In cases of deliberate tax evasion through non-reporting or under-reporting, a taxpayer may also be subject to prosecution.”
Asher says, “Non-reporting of casual income could potentially lead to scrutiny by the tax authorities, resulting in additional litigation costs. Therefore, one must take appropriate safeguards and ensure that all casual income one earns is duly captured and reported in the tax return, and the due taxes are paid.”
