A BREAKDOWN OF INDIA’S FANTASY SPORTS INDUSTRY : Dream11 and My11 Circle
The popularity of fantasy sports has surged with the advent of apps like Dream Eleven and My Eleven Circle. According to a report by FICCI-EY, the Indian fantasy sports industry is expected to reach up to $2.5 billion by 2022, with a projected growth rate of 32%, aiming for $3.7 billion by 2024.
Dream Eleven and My Eleven Circle
With approximately 90 million users as of 2019, as per a study by the Federation of Indian Fantasy Sports in collaboration with KPMG, the fantasy sports industry is generating unprecedented revenue. These platforms operate by organizing various competitions categorized based on the participants’ skills and contributions. They charge an entry fee, typically 20% of the total pooled amount in a specific competition.
The revenue model of fantasy sports apps is relatively straightforward. They register earnings through user participation, with the platform always making money as long as there is sufficient user engagement. For instance, Dream11 reported a 2.6 times increase in its operational revenue, reaching INR 2,070.4 crores in the financial year 2020 from INR 775.5 crores in 2019.
However, most fantasy sports platforms are currently running at a loss due to substantial initial expenses related to marketing, advertising, and customer acquisition. For tax purposes, winnings from such competitions are generally considered income under Section 115BBA of the Income Tax Act. The government imposes a 30% tax rate, along with a 4% cess, on the winnings.
It’s crucial for users to comply with tax regulations, and any losses from winnings cannot be offset against other sources of income. The benefits of the standard deduction of INR 2.5 lakhs available in normal cases will not apply to winnings. Also, entry fees for participation cannot be claimed as an expense to reduce taxable income.
For direct taxes, the government receives the full amount of income tax paid by users and platforms. In the financial year 2019, the government collected INR 93 crores in TDS (Tax Deducted at Source) from winnings, increasing to INR 250 crores by the financial year 2020.
In terms of indirect taxes, Goods and Services Tax (GST) on services provided by these platforms is shared between the central and state governments. GST collections from fantasy sports platforms increased from INR 166 crores in the financial year 2019 to around INR 445 crores in the financial year 2020.
While the craze for fantasy games continues to grow, challenges include user habits, financial risks, and legal restrictions in certain states. States like Assam, Andhra Pradesh, Odisha, Telangana, Nagaland, Sikkim, and Karnataka have imposed bans on payment competitions. Users should analyze the cost-benefit of playing fantasy games and consider the legal status in their respective states.
So far, the government has primarily focused on collecting taxes from users as most platforms are operating at a loss. However, it is crucial for the government to formulate guidelines and rules for the industry to ensure that platforms can eventually become profitable without transferring the burden to users or avoiding taxes.