The Dreamer's Catch
Dream 11 may be all good fun. But maybe it's time we look into the legality and taxability of online games.
Before we get into it - A brief background specifically on Dream 11
Dream11 is an online fantasy game, where players can create different visual sports teams,
comprising as many players in the real-life cricket team The user competes against such virtual teams created by other users. The winners are decided based on points scored, using statistical data generated by the real-life performance of players on the ground.
Partnering with seven IPL franchises, the recognition of the web sports games has increased to an excellent extent, especially after roping MS Dhoni as its brand ambassador. Dream11 is a political partner of BCCI’s IPL, despite being prohibited in five states.
So is this Gambling?
Yes and no. Dream 11 and other online platforms will shy away from using the term "Gambling" and will say this requires skill. John oliver did a beautiful video on how Fantasy leagues avoid calling themselves betting or gambling platforms in the US. Essentially the same system is being followed in India.
The users are required to pay an acknowledgment amount (i.e. amount of stake), which is kept in an escrow account and later, distributed as prize money upon the conclusion of the game.
In addition, users are required to pay a platform fee, for which Dream11 issues a GST tax invoice.
There was a recent case that was brought before the Bombay High Court. Without getting into the jargon or complexities of it, the question was that the activities of Dream11 amounted to gambling/ betting and consequently, the company should be paying GST on the entire acknowledgment amount for betting/ gambling. On careful consideration, the Bombay High Court dismissed this contention that such fantasy games/ contests are merely a game of chance or accident notwithstanding the involvement of substantial skills.
The judges held that the results of the contest offered by Dream11 are not at all dependent on winning or losing of any particular team in the real-world game. And so it seems to be settled that Dream 11 will not be considered Gambling/ Betting, but a game of skill.
.. Except here's our problem
Dream11 deducts TDS at the flat rate of 30% that would be applicable to winnings from lottery/ betting. The question here is - how do you show these winnings in your Income Tax Return. Do you show them at slab rates if they are a "game of skill"? Or is it a "game of chance" taxable at maximum rates. Unfortunately, there's no clear answer to this.
Like we said above Dream11 deducts TDS at the flat rate of 30%. The TDS deduction of 30 per cent would be made only if the amount exceeds Rs 10,000.
That is precisely why some gaming platforms have a threshold limit for allowing funds transfer.
But, what if the amount is lying in the wallet of the gaming app? Such an amount wouldn’t reflect in your account statement, as you haven’t won it in monetary terms. The gaming apps too ask you for the permanent account number (PAN) and bank details only when you wish to transfer the prize money to your bank account.
"Amount remaining unused in the User's Game account or Winnings Account on the date of deactivation or deletion shall be transferred to the User's bank account," states the terms and conditions of Dream11, which automatically transfers the money after 335 days, if the user doesn't place a request for withdrawal.
People are forgetting that the money has been deducted as TDS, and so the same would be reflected against their PAN numbers and can be traced back. Your Form 26AS or annual tax statement will contain the details if the company declares the amount in its TDS from. All the taxes deducted by either your employer, bank or any landlord would be reflected in your annual tax statement. Checking that is also the first step to filing your tax return.
Even if you aren’t supposed to file a tax return due to the basic income tax exemption limit of Rs 5 lakh, you would still have to pay tax on the amount you win through games. You cannot claim the deductions applicable under Section 80C, 80D etc. and hence no refund would be paid to you, even if you didn’t have any other income.
The benefit of adjusting losses isn’t allowed for money lost in such games. You can’t set off the amount you bet in the first place to win. No expenses can be claimed against these winnings. The provisions of the Income Tax Act do not permit set off and carry forward of losses against gains from winning from lotteries, crosswords, puzzles, card games or other gambling.
Okay. So does Dream11 promote Gambling?
We get money if we win. And, in the game of betting, it is the same scenario. It might not be a stretch to say that Dream11 might be a betting site more than a gaming site. Dream11’s three-year deal with IPL, worth Rs 120 crore, promotes a business that is legal but is similar to sports gambling, which is banned in India.
The three traditional constituents of gambling are a consideration, price, and chance. However, the supporters of fantasy sports games assert that any element of chance gets automatically replaced by skill in any such case.
Dream11 consists of players with high knowledge and statistical data. Hence, the argument made is that there is no betting here. Success in Dream11’s fantasy sport depends upon the user’s exercise of skills supported superior knowledge, judgment and therefore the result thereof isn't hooked into the winning or losing of a specific team within the real-world game on any particular day.
There has been a mixed reaction from different states on this Dreamer's Catch:
1. In April 2017, the Punjab & Haryana High Court ruled that daily fantasy sports do not amount to gambling since they involve a substantial degree of skill.
2. The Delhi District Court opined in 2012 that “online games of skill are outside the scope of
trade and commerce and thus do not have the protection offered under Article 19(1)(g) of the constitution, which guarantees freedom of trade, profession, and business”.
3. In 2017, a single-judge bench of the Gujarat High Court held that “a game of skill… played with stakes may be considered as gambling”. The verdict has been appealed before a division bench.
4. This January, the Kerala High Court ruled that “games of skills played for stakes amounts of the offense of gambling”.
Unfortunately, with lack of a definitive ruling, we continue to live with uncertainty regarding the legality and taxability of online winnings.
Won money from Dream 11 and need our help? Go ahead a post a query!
Author: Madhur Kapoor