The Income Appellate Tribunal (ITAT), Bengaluru, has ruled that taxation of online real-money gaming winnings should be based on actual net winnings rather than gross amounts credited to a player’s gaming wallet.
The ruling came in the case of a Bengaluru-based gamer who had put more than ₹2 crore into online rummy and poker but ultimately suffered a net loss of nearly ₹28 lakh.
The taxpayer had filed his income tax return (ITR) declaring total income of ₹4.32 lakh from sources including rental income, business income and income from other sources.
Income Tax Department flags online gaming winnings
During scrutiny of the return, the Assessing Officer (AO), Bengaluru, received information that the taxpayer had participated in online games through the Rummyculture and Gamezy platforms operated by Gameskraft Technologies Pvt. Ltd.
According to the tax department, the taxpayer had received winnings of around ₹2.33 crore through these platforms. This amount had not been reported in his ITR.
Gameskraft operated online gaming portals offering games such as deal, pool, points, tournaments, fantasy games, rummy and poker, with players using real money for transactions.
The AO noted that both real-money deposits and bonus amounts were used for gaming. The winnings credited to players’ wallets, after deduction of the company’s commission, were treated as gross winnings.
Based on this interpretation, the AO classified the amount as income from other sources under Section 56(2)(ib) of the Income Tax Act.
Gamer challenges taxation of gross winnings
The taxpayer subsequently approached the Commissioner of Income Tax (Appeals), or CIT(A), challenging the tax demand.
Before the CIT(A), he pointed out that information supplied by Gameskraft showed total buy-ins of ₹2.61 crore against gross winnings of ₹2.33 crore.
Therefore, despite the large amount of money moving through the gaming accounts, the taxpayer argued that the final outcome was actually a loss of ₹27,99,353.
He contended that once the information obtained directly from the gaming company established that he had incurred a net loss, there was no basis for treating the gross winnings as taxable income. According to his argument, taxation should apply only to genuine income actually earned by the taxpayer.
The CIT(A), however, rejected the appeal and upheld the AO’s decision. The taxpayer then challenged the order before the .
Why did the gamer win before ITAT Bengaluru?
Tax experts said the key factor in the case was the difference between the taxpayer’s total buy-ins and his gross winnings.
Gameskraft’s information showed buy-ins of ₹2.61 crore and gross winnings of ₹2.33 crore. This resulted in a net loss of approximately ₹27.99 lakh.
The tax authorities had relied on the gross winnings figure while not giving corresponding consideration to the buy-ins that were part of the same gaming transactions.
Experts also noted that the absence of tax deducted at source (TDS) on any net winnings supported the taxpayer’s position in the proceedings.
Consequently, the ITAT Bengaluru held, in the facts of this case, that only genuine net winnings from the online gaming activity could be considered for taxation. Gross wallet credits or amounts shown as winnings at different stages of gameplay could not automatically be treated as taxable income when the overall activity resulted in a net loss.