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Business News/ Money / Personal Finance/  A breakdown of India’s fantasy sports industry
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A breakdown of India’s fantasy sports industry

Fantasy games other than cricket are also gaining support from a wide range of users

AFP (MINT_PRINT)Premium
AFP (MINT_PRINT)

The craze for fantasy games has skyrocketed after the entry of apps like Dream11 and My11circle. According to a Ficci-EY report, the Indian fantasy sports industry is slated to touch $2.5 billion in 2022. The industry is growing at a CAGR of 32% and is expected to be worth $3.7 billion by 2024. With a user base of around 90 million in 2019, according to a study by the Federation of Indian Fantasy Sports in collaboration with KPMG, the fantasy sports industry is now generating revenues that nobody would have imagined in the Super Selector era. With so much money coming in, it becomes very interesting to understand the earning and taxability of income of all stakeholders.

The revenue model of these fantasy apps is fairly simple. The app/website acts as an organizer for various competitions categorized on the basis of amount and participants. For matching players, guaranteeing and organizing these competitions, the app/website charges an entry fee, which is generally 20% of the total amount collected in a particular competition. So, unless sufficient players have not participated in a competition, fantasy apps will always earn money. Dream11 posted a 2.6x increase in its revenue from operations to 2,070.4 crore in FY20 from 775.5 crore in FY19. It posted a first-time profit of 180.80 crore in FY20, according to Entrackr. Almost all of these fantasy apps are currently in loss as it generally happens in initial years due to huge marketing, advertising and customer acquisition costs.

For taxation purpose, earning from such competitions in most cases will be treated as winnings as per Section 115BB of the Income Tax Act. The provisions of the Act are strict when it comes to income from winnings. Such income will be taxable at a flat rate of 30%, added by surcharge (if applicable) and 4% cess. Users cannot set off or carry forward any loss from winnings and no loss from winnings can be set off against any other income. The benefit of basic exemption limit of 2.5 lakh, which is available in normal cases, will also be not available. And finally, one cannot even claim entry fees as expense to deduct it from income from winnings.

Taxes in any form are important for the government. In case of direct taxes, the government will get the whole amount of income tax paid by users and such platforms. If income of any user is more than 10,000, the fantasy platform should deduct tax and deposit it with the central government directly. The users can claim credit of such TDS (tax deducted at source) from their tax liability. The government received TDS on winnings in FY19 to the tune of 93 crore, which had increased to 250 crore by FY20. The amount could have been higher if users who were earning less than 10,000 in an FY had also deposited tax with the government. In case of Indirect taxes, GST payments on services offered by platforms will be shared by the central and state government in most cases. GST collections from such platforms also increased 2.6 times in FY20 to about 445 crore from 166 crore in FY19 according Indiatech. Apart from taxes, these fantasy platforms have indirectly generated 2,600 crore revenue for ancillary industries as well, including payment gateways, technology providers etc.

The craze for fantasy games is not going to slow down. Fantasy platforms have a good future ahead as games other than cricket are also gaining support from users and the growth opportunities are excellent. But they are issues of consumer addiction, financial risks and being banned by some states. States such as Assam, Andhra Pradesh, Odisha, Telangana, Nagaland, Sikkim and Karnataka have passed laws banning paid contests. Users should do a cost-benefit analysis of playing such fantasy games and consider the legal status of the game in their state. The government till now is collecting taxes only from users as most of these platforms are running into losses. It should look to frame guidelines and rules for the industry so that in future, platforms cannot shift profits or avoid taxes when they eventually become profitable.

Kashif Ansari is assistant professor, Hans Raj College, Delhi University.

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Published: 31 Oct 2021, 11:56 PM IST
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