ITAT Bangalore rules online gaming tax should be based on net winnings, not gross credits

The Bangalore Income Tax Appellate Tribunal delivered a landmark decision on online gaming taxation, holding that only net winnings are taxable. The case involved Channappa, who had deposited more than Rs 2 crore on the Rummyculture and Gamezy platforms operated by Gameskraft Technologies and ultimately incurred a net loss of Rs 27.99 lakh. The assessing officer had previously treated the full Rs 2.33 crore credited to his account as gross income, invoking Section 56(2)(ib) and the flat-rate provisions of Section 115BB.

The tribunal, relying on the company’s own transaction data and the CBDT Circular No. 5/2023, rejected that approach, noting that the tax law targets real income. It also referenced earlier horse-racing cases that required consideration of the amount staked. Consequently, the tribunal ordered the deletion of the Rs 2.33 crore addition and upheld Channappa’s original return of Rs 4.32 lakh.