In a significant ruling for India’s online gaming community, the Income Tax Appellate Tribunal (ITAT) in Bengaluru has provided relief to an online gamer who faced a hefty tax demand despite incurring a net loss. The tribunal’s decision clarifies that tax on winnings from online real-money gaming should be levied on the net amount credited after accounting for the sums spent on gameplay.
The case involved Channappa, a resident of Bengaluru, who deposited a total of Rs 2.61 crore into online rummy and poker platforms. Over the course of his play, he suffered a net loss of approximately Rs 28 lakh. However, the tax department treated the entire Rs 2.33 crore credited to his gaming accounts as taxable winnings, leading to a demand under the Income Tax Act.
Upon appeal, the ITAT Bangalore bench, in its order dated July 23, 2026, observed that the assessing officer had not fully considered the amounts Channappa had spent on buying into games. The tribunal noted that the records from the gaming platforms—Rummyculture and Gamezy, operated by Gameskraft Technologies—showed total buy-ins of Rs 2.61 crore against gross winnings of Rs 2.33 crore, resulting in a net loss. Consequently, the tribunal ordered the deletion of the entire Rs 2.33 crore tax addition.
The tribunal also examined the applicability of Section 115BB, which provides for a flat tax rate on winnings from lotteries, card games, and similar activities, and Section 194B, which deals with tax deduction at source. In this case, no TDS had been deducted on any net winnings. The bench clarified that the earlier provisions applied, as the Finance Act, 2023 (which introduced Sections 115BBJ and 194BA for online gaming) was not in effect during the relevant assessment year.
This ruling underscores a critical principle for online gamers and tax authorities alike: the mere movement of money through a gaming account does not automatically constitute taxable income. The final tax liability depends on the net result—the difference between winnings and the amounts staked. The decision serves as a precedent for future disputes involving online gaming and taxation, offering clarity in an evolving digital economy.
