What if, while playing a fantasy sports game and collecting Fantasy Gems, you got the notification that you have won a big prize? In a spout of genuine joy? Not until you hear about “Fantasy Gems Taxation.” What is that and do you really have to pay taxes on your winnings?
What is Fantasy Gems Taxation?
Simply put, Fantasy Gems Taxation is a set of regulations detailing the rules revolving the earning of tax money on prizes earned through playing fantasy sports games, specifically focusing on the winning of Fantasy Gems or cash prizes. Just like in your employment, where money is earned and subsequently taxed, on some level it is plausible you would face a similar situation winning in fantasy gems games.
Why Do We Pay Taxes?
Taxes are mandatory contributions to the government, and in return for this payment, people receive a variety of services, including schools, road construction, hospital funding, and park building. These include:
- Income tax: Money paid on what you earn.
- Sales tax: Money paid when you buy things.
- Property tax: Money paid if you own land or a house.
When you win money or prizes from fantasy games, the government sees it as income, so you might have to pay a tax on it.
How Does Fantasy Gems Taxation Work?
Let’s say you play a fantasy sports game and win some Fantasy Gems or cash. Here’s what usually happens:
- Winning Cash or Gems: In the event that you emerge victorious, the game might award you cash, Fantasy Gems, or other prizes.
- Tax Deduction: In such cases, it is likely that the game company will finally deduct some amount for tax. “Tax Deducted at Source” (TDS) is what this is often called.
- Reporting to the Government: The game company informs the government regarding the earnings of the player and the tax that they has been deducted.
- Filing a Tax Return: You (or your guardians) will need to inform the government regarding the earnings in the yearly return they file.
How Much Tax Do You Have to Pay?
In many countries, including India and the United States, the tax rates for fantasy game winnings are usually high. Here’s how it works:
India
- Flat Tax Rate: Earnings from online games such as Dream11, MPL, or My11Circle are taxed at a flat rate of 30%.
- No Minimum Limit: Even if a person does win a small amount, they will still have to pay tax. Until recently, only winnings over ₹10,000 were taxed, but now there is no minimum limit.
- TDS (Tax Deducted at Source): Your revenues are subjected to a taxation rate of 30% by the game company.
- No Deductions Allowed: You are unable to reduce the tax by claiming an expense or investment. The entire winning amount is taxed.
United States
- Reporting Winnings: When the winnings exceed $600, the game company issues a 1099-MISC (or 1099-K) both to you and to the IRS.
- Tax Rate: Non-salaried winnings are taxed as ‘other income’ in the returns. The rate varies based on your overall income and bracket.
- Business vs. Hobby: Fantasy sports players who participate as a business can book losses to some extent; however, those who play as a hobby are unable to book losses.
What Counts as Winnings?
Winnings can be:
- Cash: The cash amount you win and are able to withdraw.
- Fantasy Gems or Points: If exchangeable for cash or prizes, those counted as income.
- Prizes: Winning a precious item such as a phone or laptop, comes with a tax value.
How is Tax Calculated on Fantasy Gems Winnings?
Let’s look at a simple example:
Suppose you win ₹1,000 in a fantasy sports game.
- The game company will deduct 30% as tax, which is ₹300.
- You will get ₹700 in your account.
- The government gets ₹300 as tax.
If you win a phone worth ₹10,000, you have to pay 30% tax on ₹10,000, which is ₹3,000.
When Do You Have to Pay Fantasy Gems Taxation?
- At the Time of Withdrawal: You will need to pay tax on your winnings under two circumstances. The first is when making a withdrawal. In this case, the taxes will be deducted from your total amount once you complete the withdrawal.
- End of Financial Year: The second is at the end of the financial year. This applies when you choose not to withdraw your funds and opt to withdraw at the end of the financial year, in which the funds will be taxed then.
- Filing Tax Returns: Even if tax is already deducted, you must mention your winnings when you (or your parents) file your tax return.
What If You Don’t Pay Taxes on Your Winnings?
No, gaming tax residents of India with the game winnings do not get any tax concessions or exemptions on game winning in fantasy games. The tax is proportional, which means you have to pay in full.
If you’re an individual looking to participate in a business venture, you may be able to write off losses, but for the majority of people, playing as a hobby will inevitably make it impossible for them to receive any sort of financial relief.
Can You Get Any Deductions or Rebates?
- India: No, you cannot get any deductions or rebates on tax paid on fantasy game winnings. The tax is flat, and you must pay the full amount.
- United States: If you play as a business, you might be able to deduct losses, but most people play as a hobby and cannot deduct expenses.
Fantasy Gems Taxation for Game Operators
It’s not just the participants who are taxed! The operators of fantasy sports also face direct taxation for the profits they generate through operating these games. For example, in certain regions of Arkansas (USA), there is an 8% privilege tax on the revenue accruing to the operator from the fantasy sports game. They also have to comply with other legal taxation requirements and submit returns to the taxation office.
Fantasy Gems Taxation: Key Points to Remember
- All winnings from fantasy sports games are taxable.
- Tax is usually deducted before you get your winnings.
- You must report your winnings when filing your tax return.
- No deductions or rebates are allowed on these winnings in India.
- Not paying taxes on your winnings can get you in trouble.
FAQ’s
Q: Do I have to pay tax if I win Fantasy Gems instead of cash?
A: If you can exchange Fantasy Gems for cash or prizes, you have to pay tax on their value.
Q: What if I win less than ₹10,000?
A: Now, even small winnings are taxed. There’s no minimum limit anymore in India.
Q: Do I have to file a tax return if I win Fantasy Gems?
A: Yes, you must mention your winnings when you file your tax return, even if tax was already deducted.
Q: Can I reduce my tax by showing expenses?
A: No, you cannot reduce your tax on fantasy game winnings by showing expenses or investments.
Q: What happens if I don’t pay the tax?
A: You could face penalties or legal trouble. Always pay your taxes.
Tips for Young Fantasy Sports Players
- Always check the rules about Fantasy Gems Taxation before playing.
- Keep track of how much you win and how much tax is deducted.
- Ask your parents or a tax expert to help you file your tax return.
- Remember, paying taxes is a part of being a responsible citizen!
Conclusion:
While the term Fantasy Gems Taxation may sound complicated, it essentially ensures that there is equity among participants concerning taxation when a person earns money or receives awards from participating in fantasy sports competitions. The government seeks to receive information and, subsequently, impose taxes on cash prizes, Fantasy Gems, and other exciting rewards contestants receive.
Next Time you claim to be the best in the world at your fantasy game, remember: Fantasy Gems Taxation does exist and it has to be respected.