The Legal and Tax Matrix of Fantasy Games

Though legalised, fantasy sports are yet to get a status of ‘skill game’. We take a quick look at theperceived lack of legality and how the winnings are taxed ononline fantasy platforms.

Over the last few years, the conception of fantasy sports platforms has created a new kind of sports followers who have learned to make money through fantasy platforms by just following their favourite teams and players. IPL has provided an excellent opportunity to attract new users to these platforms. So how do users benefit from looking at their favourite players and teams?

How it all started?

Fantasy sports competitions had started rooting in India from the early 2000s. However, it took almost a decade for the sector to become widely popular and accepted. In fantasy sports, players form a fictitious virtual team of their favourite sports. At present, a variety of fantasy sports game platforms have emerged in India, including Dream11, Mobile Premier League (MPL), MyTeam11, Halaplay, 11Wickets and My11Circle.

Legality of online fantasy games in India

The perceived lack of legality of online fantasy sports platforms, which support playing franchisees in the popular league, has been widely misunderstood, as have

By Akash Mishra

the moral and aesthetic problems around real-money gambling. Skills games are legal in India and are not subject to Indian gambling legislation, mainly the Public Gambling Act of 1867.

In regulating the platforms that offer such games, Indian law distinguishes betting on games of chance and betting on games of skill. Although participation and offering luck-dependent games are strictly prohibited, the law takes a more favourable position in skill games. In Dr K.R. Lakshmanan v. Tamil Nadu and Anirban, the court held that a game whose success mainly depends on the player’s knowledge of the game, training acquired, attention given, experience and proficiency should be classified as a skill game. Fantasy sports perfectly fit the bill because participants’ success mainly depends on their knowledge and statistical information about the game, their understanding of players, their performance in a specific field, and their knowledge of the game.

The same judgement was passed in the Varun Gumber v. Union Territory of Chandigarh case. The High Court of Punjab and Haryana held that. Players are required to choose their virtual team skilfully by assessing the players, with the limited credit points available at their disposal, and closely monitor the real game to win the virtual match. Hence, it cannot be prohibited under the Gaming Act.

In the Gurdeep Singh Sachar v Union of India, the Bombay High Court also upheld the validity of the online fantasy sports platform Dream11, following the decision of the Punjab and Haryana High Court. However, the Supreme Court of India later put a stay on the operation of the decision by the Bombay High Court, and the issue remains unresolved.

Uncertainty still looms

Owing to its uncertainty and chance elements, fantasy sports easily gets identified as a gamble. Therefore, it’s safe to say that fantasy sports are wholly dependent on the virtual

game’s outcomes, which in turn is dependent on the team’s real game outcome.

When we say fantasy sports are legal in India, that does not mean that the sector is entirely free of restrictions. Investments and operation of fantasy sports in India does carry a certain number of restrictions. It is still necessary to pay attention to India’s laws and those in the individual states.

The governing bodies

The “Federation of Indian Fantasy Sports” (FIFS) was established to regulate and promote best practices in India’s online fantasy sports services and tournaments. The charter assures that the game played by its participants is entirely skill-based and not considered gambling. By adopting IAMAI Guidelines, the FIFS has also developed Self-Regulation Guidelines (‘guidelines’) on Advertising Online Gaming to guarantee that advertising are fair, transparent, and not deceptive. The standards forbid members from advertising any gambling or betting activity, resulting in sanctions if they are broken. It is assured that no one under the age of 18 is permitted to participate. It also guarantees that the public is not deceived and that awards and other financial aspects are transparent.

In December 2020, the Government of India’s public policy think tank, NITI Aayog, issued a draught discussion paper on Guiding Principles for the Uniform National Level Regulation of Online Fantasy Sports Platforms in India. The lack of a standard set of rules and regulations, according to NITI Ayog, is impeding innovation and product development in this area, resulting in a negative impact on foreign investments, job possibilities, and income loss for the government. They proposed that clear parameters be developed for fantasy sports platforms, including establishing adequate governance, transparency, consumer protection, and responsibility.

Taxing the winnings

Fantasy sports game prizes are taxed under Section 115BB of the Income Tax Act. Taxes from the platforms are deducted so that players don’t take any deduction from their expenditure. In other words, it doesn’t matter how much money you spend while playing; it won’t be taxed. However, your income/winnings are treated as “income from other sources” and is therefore taxed under Section 115BB.

Dream11 states that once users confirm their personal information, they can withdraw the money they earn and transfer it directly to their bank account. The Dream 11 help desk states, “If your net win in the contest exceeds £10,000, you will be taxed at 30%. The remaining amount (after tax deduction) will be credited to your Dream11 account as a ‘prize.’ Also, you will only get a TDS certificate if you check your PAN card on Dream11.” The website illustrates the calculation with an example. If you enter the contest for `3,000 and win `12,000, “The net prize is (`12,000 – `2,000) = `10,000. Taxes apply only if the net prize is over £ 10,000. Therefore, there is no TDS in this contest. If the winning amount is `13,000, “The net winning amount is (`13,000 – `2,000) = `11,000, and 30% TDS will be applied to `11,000 rupees.” Users can obtain a TDS certificate within three months from the winning date. However, a PAN-verified Dream 11 account is required. The same procedure is more or less followed by every fantasy sports platform currently.

Gamer safety and security measures

Lack of security for gamers and safeguard against illegal activity are also some areas of concern. NITI Aayog has proposed a minimum age for gamers, fairness in-game, T&C, disclaimers and responsible advertising. ASCI has also proposed self-regulation of actual money game advertisements. These measures are needed across the board, not just for OFS games. Game operators should do KYC verification, user authentication, etc.

Fantasy sports brands are not very far behind any other well-established brands in the country when it comes to revenues and sponsorships. As the fantasy sports sector moves forward on the path of prosperity, a clear and structured set of rules is the need of the hour. With this, the fantasy gaming sector of India is poised for an incredibly rapid growth story ahead.