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Many e-commerce companies like Amazon, CRED and others often run contests like spin-the-wheel where cash equivalent or non-cash prizes like iPhone, OnePlus mobile, gift vouchers, and other goodies are offered. At times, instead of prizes, cashback or discounts on products are given to the customer.To win these prizes all an individual needs to do is spin the wheel or play the game on the e-commerce website. No money or registration fee or similar is required to be paid to participate in spin-the-wheel contests organized by e-commerce companies. Sometimes, points are given which can be redeemed later for gift cards after crossing a certain threshold.
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Just like any other winnings you make on online games, there are tax implications you need to be aware of with regard to the money you win in spin-the-wheel games organized by e-commerce portals.
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How is money made from spin-the-wheel games taxed
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Online games: “Online game means a game that is offered on the internet and is accessible by a user through a computer resource including any telecommunication device,” says Dr. Suresh Surana, founder, RSM India, a tax and business consulting group. A telecommunication device can mean an iPad, any tablet, mobile phone, or other devices which can be used for tele communication.
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The winnings from online games run by e-commerce websites are considered as a game of chance. These winnings are taxed under section 115BBJ of the Income Tax Act, 1961. According to Section 115BBJ, income in the nature of winnings from online games shall be taxed at the rate of 30% flat plus cess and surcharge (if any), with effect from FY 2023-24.“The winnings from online and offline games/contests/others till March 31, 2023, would be taxable at 30% (plus surcharge and cess) under section 115BB. Till FY 2022-23 there was no distinction between offline and online game winning for taxation purposes,” says Kumarmangalam Vijay, Head of Direct Tax and Partner, JSA Advocates & Solicitors.
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Offline games without internet: “In case the online games do not fall within the scope of Section 115BBJ due to non-satisfaction of any required condition for instance, the contest can be accessed without internet, the same would still be covered within the scope of Section 115BB and subjected to tax @ 30% (plus applicable cess and surcharge, if any),” says Surana.Offline gaming contests are those contests which are conducted at a physical location like in a mall gallery or auditorium, etc. without the requirement of an internet or telecommunication service or device, respectively.Winnings from offline games are also considered as a game of chance. However, the tax is levied under different sections of the Income-tax Act. Section 115BB imposes a flat income tax rate of 30% plus cess and surcharge (if any) on winnings from offline gambling or betting games.
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Calculation of taxation for winning from online and offline games
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Receipt of gifts or cash prizes from online spin-the-wheel contests are taxed under section 115BBJ and section 115BB, respectively. This tax is levied irrespective of the applicability of the basic exemption limit of the individual. This means even if an individual has a gross taxable income below Rs 2.5 lakh/Rs 3 lakh, ITR filing is mandatory to declare winnings from these games.
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For example, if an individual has gross taxable income of Rs 2,48,000 in a financial year and won Rs 7,50,000 through the contest, then 30% tax plus cess has to be paid on the Rs 7,50,000 income. Further, ITR filing would be mandatory for this individual. If the prize income of Rs 7,50,000 was non-existent for this individual, then the individual would not have to pay any income tax and ITR filing is not mandatory.
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Valuation of prizesThe prizes can be given in kind (iPhone, etc.), cash and in cash equivalents (gift card, etc.). “Prizes given in cash/cash equivalent or in-kind through online or offline games organized by e-commerce sites should be reported as income under the ‘Income from other Sources’ while filing the income tax return (ITR). If the prize is received in kind, the market value of the gifts /items received is taken into consideration for determining the value of the gift/item received,” Akhil Chandna, Partner, Grant Thornton Bharat, a tax and business consulting group.
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Is TDS applicable on winnings from online/offline games?
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Tax deducted sources (TDS) are applicable on the winnings from online games from FY 2023-24 (AY 2024-25). TDS on winnings from earlier years shall be levied under section 194B. However, there is a difference in applicability of TDS for ‘online games’ and offline games.
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Offline games: “TDS shall be deducted under section 194B for winnings from any betting or gambling game if the aggregate amount received in a financial year exceeds Rs 10,000,” says Surana.
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Online games: “TDS shall be deducted under section 194BA for winnings from any online game without any threshold limit,” explains Surana. This means that if an individual wins Re 1 in an online game, TDS would be deducted. However, if an individual wins Rs 9,999 in an offline game, no TDS would be deducted.The TDS rate under both section 194B and 194BA is flat at 30%.
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Payment of TDSThere could be a situation where the prize from the contest is received wholly in kind or partly in cash and kind, but the cash prize is not enough to cover the TDS liability. “In case the cash price is not sufficient to meet the liability for deduction of tax or the prize is in kind, the distributor of such gifts shall, before releasing the winnings, ensure that tax has been paid in respect of such winnings. This means that the winner of the prize cannot take home the prize without paying the TDS amount,” says Surana.
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The liability to pay TDS is upon the winner of the game, however, it is the responsibility of the contest organizer to collect and deposit TDS on the winner’s behalf. Hence, the contest organizer will collect the money for TDS from the winner to deposit on his/her behalf.
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How to report winnings from online/offline games in ITR
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“The winnings from online/offline contests including spin the wheel contests should be reported as income under the head of income ‘Income from other Sources’ in the ITR. The Individual should disclose such income i.e., winnings from online games/lotteries etc. under “Schedule OS” of the ITR form under part 2 “Income chargeable at special rates”,” says Chandna.
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There is no point in hiding such income as the company running the contest would deduct TDS otherwise, they would not be complying with the tax laws. If the individual still goes ahead and does not file schedule OS along with his/her ITR, he/she may invite scrutiny by the income tax officials. If the contest organizer did not deduct TDS, it would be a breach of law and the organizer would be prosecuted.
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“We understand that there are currently certain prescribed compliances through which the income tax department tracks these transactions. These include filing of TDS and income tax return of the contest organizer, issuance of Form 16A to the recipient of income, maintenance of proper records and documentation for the game winnings, etc.,” says Vijay.
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“It is important to note that the non-reporting of such income can easily be identified by the tax department on the basis of taxes withheld and deposited by Organizer at the time of distributing the winning prizes,” says Chandna.
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Is GST applicable on prizes won?
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“Earlier the GST rates were different for games of skill and games of chance.
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However, since October 1, 2023, there is no distinction between a ‘game of skill’ and a ‘game of chance’ when it comes to GST rate. Both the types of games are uniformly taxed at the rate of 28%. GST is levied on the gross gaming revenue (GGR) /platform fee/ registration fee, etc by whatever name be it called,” says Sanjay Chhabria, Director-Indirect Tax, Nexdigm, a professional services providing company.
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Spin-the-wheel or jackpot or other games played on the internet are usually a game of chance. “Since e-commerce websites like Amazon, CRED do not charge any money/registration fee/ platform fee/ other fee for playing spin-the-wheel game, GST is not levied. If there is any website that charges money to play spin-the-wheel, GST would be applicable,” says Ankit Jain, partner, Ved Jain and Associates, a Delhi based chartered accountancy firm.
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