Taxation On Online Gaming – A Taxation Perspective*******

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Online gaming usually works on a subscription model i.e. users get charged only if they choose to access premium content and make in-app purchases. While certain games are played purely for the thrill of it, there are other games which offer players a chance to win real money. Some of the games in which players can earn real money include games such as poker, rummy, sporting games such as cricket and football, quizzes, and battleground games.

Online gaming is basically a bifurcation between “GAME OF SKILLS “& “GAME OF CHANCES”.

In K.R. Lakshmanan v. State of Tamil Nadu, the supreme court defined a “GAME OF SKILLS” to mean “One in which success primarily depends on the superior knowledge , Training , attention , experience , and adroitness of the player”. Examples are Golf , Horse race betting , chess etc.

However “ game that involves probability “ are considered to be a “GAME OF CHANCES”.

This article provides a brief and summarized information related to the fast growing online gaming industry in India, their legality, revenue generated and taxation from income tax perspective.

Taxation On Online Gaming - A Taxation Perspective-min


The first and foremost question that arises in the mind of reader is , whether “ Online gaming is legal in India”. This point describes the legality.

It was held in case of Manoranjithan Manamyil Mandram v. State of Tamil Nadu (2005) that whether a game is considered to be one of chance or skill is a question of facts to be decided on the facts and circumstances of each case.

Below are some landmark judgements passed by Indian courts which put a full stop to the confusion between games of skills and chances:

1.1957The State Of Bombay Vs R.M.D. Chamarbaugwala R. M. D. Chamarbaugwala vs Union of IndiaSUPREME COURTGames of skills are business activities protected under Article 19(1)(g) .
2. 1968State of Andhra Pradesh vs K Satyanarayana & OrsSUPREME COURTRummy is predominately a game of skill.
3.1996KR Lakhmanan vs State of Tamil NaduSUPREME COURTHorse Racing, football, chess, rummy, golf, and baseball are games of skill
4.2017Varun Gumber  vs Union Territory of Chandigarh and OrsPUNJAB &HARYANA COURTonline fantasy sports is a ‘game of skill’.
5.2019Ravindra Singh Chaudhary  vs Union of India and OrsSUPREME COURT
6.2021Avinash mehrotra Vs State of Rajasthan & OrsSUPREME COURTOnline fantasy sports having any element of betting/gambling is no more res integra.
7.2021Junglee Games India Pvt Ltd & Ors Vs State of Tamil Nadu & OrsMADRAS HIGH COURTRummy and poker are games of skill protected under Article 19(1)(g).
8.2021Head Digital Works Pvt Ltd & Ors Vs State of KerelaKERELA HIGH COURTRummy is game of skill and online rummy is no different than physical form of rummy.
9.2022AIGF and Ors Vs  State of KarnatakaKARNATAKA HIGH COURTGames of skill do not metamorphise into games of chance if they are played online.


Sources of collection of revenue are as follows:

1. Contest Entry Amount & Gross Gaming Revenue

As per recent notification (dated 08-12-2022) there are reports that upcoming GST Council may consider imposing a 28 per cent Goods and Services Tax (GST) on the total amount rather than the current practice of 18 per cent on GGR and not simply on CEA.

Online skill-based gaming industry is fine with the government raising GST on online gaming from 18 per cent to 28 per cent but it should be levied only on gross gaming revenue (GGR).

(Gross Gaming Revenue (GGR) is the fee charged by an online skill gaming platform as service charges to facilitate the participation of players in a game on their platform.

Contest Entry Amount (CEA) is the entire amount deposited by the player to enter a    contest on the   platform).

2. Winnings from real money online games:

Gaming platforms such as Dream11, Junglee Rummy, Ludo Empire, The Money Drop etc. provide players a chance to win real money. On these platforms, players pool money (wager amount or stake) into a gameplay and winnings are credited to the accounts of the player who wins the wager or stake. The player is free to transfer the winnings to his/her bank account or to use it for further gameplays.

Income from winnings of real money from online games is taxable under the head “Income from other sources” under section 115BB of the Act. Unlike income of professional streamers, no deductions are allowed, and tax is chargeable at a flat rate of 31.2% (irrespective of the quantum of winnings) on the gross winning amount credited to the player’s account.. The income will be taxable irrespective of the fact that you used it for further gameplay or that your total income is below ₹2.5 lakh.

3. Joining bonuses and referral bonuses:

Most real money online games provide a joining bonus to its players on log in and provide referral bonuses for referring friends. Now the nature of these amounts is different from that of prize winnings and accordingly, these are not taxable under section 115BB of the Act.

Income from joining bonuses and referral bonuses is taxable on net basis at applicable slab rates in case of individuals and no tax is payable if income earned is below the maximum amount chargeable to tax.

For professionals, this income will be taxable under the head “Income from business and profession” .For others, it will be taxable as “Income from other sources”.

4. Distribution during gaming tournaments:

Online gaming tournaments are yet to gain popularity in India. During these tournaments, sponsors distribute various merchandises to the participants and the winner takes home either cash or gift prize.

Winnings from gaming tournaments are taxed on the lines of winnings from online gaming under section 115BB of the Act.

Merchandise received by a professional is taxable under “Income from business & profession” irrespective of the market value of the merchandise. For others, income is taxable under section 56(2) of the Act, only if the total market value of the merchandise exceeds ₹50,000.

At present, online gaming has a dual tax rate system.

The government levies

18 percent tax on “Games of Skills” (not involving betting and gambling)

28 percent GST on “Games of chance” (involving betting and gambling)

18 percent GST “Online gaming apps”

28 percent GST “casinos and horse racing

Income of professional streamers is taxable under the head ‘business & profession’ on the net taxable income, i.e., income after considering business expenses.

The individuals also have the option to offer income on presumptive basis under section 44ADA of the Act if their total income is below ₹50 lakh in the previous year. This income is taxable at applicable slab rates in case of individuals and no tax is payable if income is below the maximum amount chargeable to tax i.e., ₹2.5 lakh. Gaming income exceeding Rs.1cr incurs a surcharge of 15% of the normal rax rate additionally levying 4% Surcharge for Health & Education Cess.


Under section 64(1A) of the Act, income of minor child is clubbed with the income of the parent except when the income is on account of application of any skill, talent or specialized knowledge and experience.

Given that online gaming has been held to be a game of skill by various courts, income of minor from online gaming will be taxable in their own hands depending on the nature of the income. The CBDT has urged winners of online gaming to file updated income tax returns (ITRs) and clear any income tax dues.


Group of Ministers (GoM) is considering a proposal to segregate the amount collected by online gaming portals into two accounts  ­—   Service and Escrow.

According to the proposal, the service account should attract the GST rate of 28 per cent,

While the money in the escrow account could attract a tax deducted at source (TDS) of 30 per cent under the direct tax rules.


Since the tax lens is now pointed at online gamers, and non-reporting can lead to penalty of upto 200% of   the   tax amount, it is crucial to understand your tax liabilities and update the ITR.

It is player’s responsibility to declare the winnings as “income from other sources”. In case after having expected the winning amount , the gamer does not declare the same while filing IT returns , it may lead to receiving legal notices from the authorities and IT department, placing enquiries on taxation of Winnings.



As seen from the table, revenue from online gaming industries steadily increases over years giving rises to high tax liability which can act as a source of increasing revenue collection for Govt.


The outbreak of covid pandemic resulted in nationwide lockdown and gaming companies have been witnessing a high spike in new registrations providing incredible rise in the popularity of online gaming in India. Income tax returns require reporting of income earned from such online gaming at the time of filing of returns .The Financial Tree Company help achieving this motive  .


The above comments do not constitute professional advice. The Author can be reached at or call us on 9111872247 / 9078468912 or visit website My name is Priyanka Agrawal (CA-FINALIST) and I am working at FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company). in field of Income Tax and Finance. We also upload educational videos in You tube and name of our channel is FINANCIAL TREE COMPANY. Our aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.

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