Are Online Poker Earnings Taxable in India
Tags: Poker, Poker Game, Game Of Skill, Poker Online, Poker Table

In India, the Public Gambling Act of 1867 prohibits running or being in charge of a public gaming house, and also prohibits visiting gambling houses, except for licensed casinos in Goa and Sikkim. This prohibition also applies to popular casino games like roulette, teen-patti, andar-bahar, etc played at unlicensed gaming houses. Experts believe these restrictions also apply to playing these games online.

However, poker is a game of skill. A player uses his/her knowledge, training, attention, experience, or expertise and the final outcome is influenced by one or more of these factors. While games of skill may have an element of luck or chance, as long as they are predominantly influenced by skills, they are not considered ‘gambling’ and do not break the laws prohibiting gambling. Poker has been recognized as a game of skill by several High Courts in India, and meets all the criteria related to “games of skill” laid down by the Supreme Court of India.

Taxation of online poker: Income Tax

Players in India must declare their online poker winnings and pay a 30% tax on that winning amount along with surcharge if applicable and education cess @ 3%. For any player winning more than Rs 10,000, taxes will be deducted from their winnings. TDS is deducted when a player has a winning of over Rs.10,000 in a session of poker. For online poker, it is mandatory for the site to deduct 30.9% of TDS on the total winning, before they reach a player. Once a player receives the amount after the tax deduction, he/she is not liable to pay any other tax on the amount received, since the TDS has already been deducted. The sites that deduct TDS will provide a certificate as a proof of the same to the player.

Some poker sites have spent a lot of time understanding the applicable tax laws and evolving policies that help players minimize their tax liability while fully adhering to all applicable laws. The best policy is probably the one by 9stacks.com, which uses a “dual chip system”. In this system a player will have 2 kinds of chips in their account, user chips and poker chips.

User chips: this is the link between a player’s bank account/credit card and 9stacks. Whenever a player deposits money using one of their payment gateways, the company credits an equivalent number of user chips in the player’s user balance. The user balance cannot directly be used to play poker and is freely withdrawable at any time, so a player can transfer any amount from their user balance to their bank account at any time without any TDS implications.

Poker Chips: a player’s poker balance is what they use to play poker on cash tables or tournaments. They can do so by moving some or all of their user chips to the poker balance, where they will show as an equivalent number of poker chips. If the player starts playing with these chips, any additional chips won are also in the poker balance. Wins and losses over a period of time can be set off within the poker balance. When a player wants to make a withdrawal, the session is completed and they move all their chips from the poker balance to their user balance after the game cycle ends. If the net winnings exceed ₹10,000, the company will deduct TDS at 30% and transfer the remaining to the user balance. This system is very efficient for players as losses and wins within a session can be set off and only net winnings are taxable, regardless of the length of the session. Secondly, wins from poker tournaments and losses from poker cash tables (or vice versa) can be set off within the same session.

Taxation of online poker: GST

From a tax point of view, online poker sites are nothing but a platform that provides a service to their customers, consisting of IT infrastructure, game operations including a good user interface design and overall user experience, data security, easy transfer of money in and out, and matching of players to different games. Accordingly, online skill games like poker are liable to GST. As per the GST Act, they fall under ‘all other services not specified elsewhere’ category and are subjected to a 18% GST rate. GST is charged on the rake (service fee) charged by the online poker operator, and is paid by the online portals from the service fees charged by them, and not separately collected from players.

In 2019 the Bombay High Court ruled that daily fantasy sports games depend upon a user’s skill and judgment and is undoubtedly a game of skill. The same judgment is also applicable for poker as it is also a game of skill. The court further ruled that GST is not applicable on the entire deposit received from a player but only on the consideration which is payable / collected for the supply of goods or services or both within the platform — i.e., the service fees charged by the poker platforms.