Hello,

I play on a poker site in India and am undergoing a dilemma regarding how they deduct TDS (tax deducted at source) from player accounts. Let me explain:

They have two types of tables: Low-stakes tables using real chips and high-stakes tables using VIP chips. TDS is only calculated on VIP table winnings of over 10k. This is an excerpt from the site:

To play online poker on a VIP table, you need to convert your Real Chips into VIP chips. When you take seat on a VIP table, the real chips are automatically converted to VIP chips. Alternately, you can convert real chips to VIP chips from the game lobby. You just need to go to the “VIP Chips” tab and then click on “Convert Real to VIP Chips”. Once you fill in the amount, appropriate number of Real Chips will immediately be converted into VIP Chips.

As per regulations, the site levies TDS on all VIP winnings above Rs 10k.

VIP winnings are calculated whenever a player converts VIP chips to Real Chips. Let’s take an example: Player A converts 5000 from Real chips to VIP. This Rs 5000 will be player A’s buy-in amount into VIP. Assuming Player A plays and takes his VIP chip balance to 20000 chips playing on the VIP tables. His winning would be = 20000 – 5000 (Buy-in) = Rs 15000. In this case the winning is more than Rs 10000 and tax @30% on the complete winning amount (i.e. Rs 15000) will be levied. Hence Player A will have a TDS of Rs 4500 (30% of Rs 15000) and the remaining amount of Rs 15500 (Rs 20000 – TDS of Rs 4500) will be converted into Real chips and credited into his account.

Example 2: Player A converts 5000 Real chips to VIP. Assuming Player A loses and is left with only 2500 VIP chips. In this case, Player A can convert these 2500 VIP chips into 2500 Real chips without any tax deduction as there are no winnings.

The site does not allow partial conversion of VIP chips to Real. Players have to compulsorily convert all existing VIP chips in case they want to convert VIP chips to Real chips.

Each time a player converts VIP chips to Real chips, all accumulated losses or winnings are wiped off and not carried forward. Next time the player converts Real chips to VIP chips, his calculation for VIP winnings will start afresh. Eg: Player A buys 5000 VIP chips, loses all and again buys 5000 VIP chips. This time he wins 4000 VIP chips taking his total VIP chip balance to 9000. In this case his buy-in amount is 5000 + 5000 = 10000. He now converts his 9000 VIP chips to Real, no TDS will be levied and his account for this transaction is closed. Again if Player A now buys another 5000 VIP chips, none of his previous buy-ins will be considered in calculating the Total Buy-ins during his next TDS calculation at the time of VIP to Real conversion. In other words, only VIP buy-ins after the last VIP to Real conversion are considered for TDS calculations at the time of VIP to Real conversion.

VIP chips can be left as it is till 31st March of each year, after which the site will automatically convert all VIP chips to Real chips and deduct tax accordingly based on individual player winnings. This is done as per regulations to calculate VIP winnings of each player for the complete financial year and issue TDS Form.

Note: Players can convert VIP Chips to Real Chips of vice-versa anytime they want. However it is advisable that players do not convert VIP Chips to Real Chips frequently to avoid multiple tax deductions and inconvenience of having to convert Real into VIP Chips whenever the player wants to play on high stake tables.

Tips to minimize TDS deduction? If possible, convert from VIP to real chips rarely. If you convert at a time when your winnings are less than 10K, no TDS will be deducted.

Now, all of the above seems okay unless I convert VIP chips into real chips when I have an accumulated loss and end up winning money later: Let's say I sit down and lose 150k at the VIP tables. My "winnings" counter shows -150k and applicable TDS is obviously 0. Next, I convert whatever remaining VIP chips I have into real cash so I can drop down in stakes. This resets my whole TDS calculation and "winnings" are reset to 0. Next month, I deposit another 50k and sit at the VIP tables, and end up winning 100k (profit). Now my "winnings" show as +100k and applicable TDS is 30k. So although I'm technically still losing 50k (-150k+100k) overall in the financial year, I have to pay TDS of 30k just because I converted VIP chips into real chips when I was down 150k, thereby resetting the "winnings" counter. If I hadn't converted my balance VIP chips into real when I was down 150k, my "winnings" would not have been reset and TDS applicable would correctly still be 0.

It seems ridiculous to have to pay 30k in TDS when I actually have a net loss. It seems like they have this practice in place so that players can regularly convert while their winnings are upto Rs. 9999 and never have to pay TDS as their "winnings" counter keeps getting reset upon every such conversion. However, it backfires honest players like me who are unaware of such practices and unknowingly convert their chips while having a negative "winnings" counter and consequently end up paying taxes the next time they win, inspite of being down overall.

How do I deal with the site regarding this issue from a mathematical/logical standpoint? Suggesting them to not reset "winnings" upon conversion seems complicated/unachievable as that's mentioned in their T&C as above and would probably complexify TDS calculation/subtractions even if done.

Is there a better, more correct way the site can calculate/subtract TDS from player accounts with this setup? One thing is certain - TDS must definitely be deducted from a player's balance everytime they convert VIP to real (otherwise they could end up losing all the money at real tables). However, if that is done, then how should adjustments be made for future winnings/losses at VIP tables if the winnings counter is not reset and reflects the correct amounts? Seems fairly complex.