Absolute Stalemate! How the Revenue will Tax about Rs.4.8 Crore from the Winnings of Chess World-Champion D. Gukesh

Prodigious chess grandmaster Gukesh Dommaraju beat reigning world champion Ding Liren in a best-of-14 game final at the 2024 iteration of the World Chess Championship, which ended in a triumphant victory for Gukesh. Gukesh will walk away with a total earning of about $1.35 Million (about Rs. 11.45 Crore) from the tournament, on which the Indian Government may levy a tax amount of Rs. 4.8 Crore.

The 18-year old, born in Chennai to a Telugu family started playing the game at the tender age of seven, navigating through the intricacies of the black-and-white squares to be crowned the youngest ever classical chess world champion. Gukesh raked in $600,000 from his 3 wins in the 14 part final and is set to receive $750,000 from the total $2.5 Million prize pool, bringing his total taxable income from the winnings to about Rs. 11.45 Crore in Indian currency.

The Tax Gambit

Assuming Gukesh is a resident and ordinarily resident (ROR), all of his earnings accumulated around the globe shall be liable to income tax in India. As per the new regime, net taxable income above Rs.15 Lakh shall bring an income tax liability of 30% on the income. Thus, the base tax on Gukesh’s winnings shall amount to Rs.3,43,50,000. Additionally, a 4% Health and Education Cess amounting to Rs.18,81,960 may also be levied on his income.

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It doesn't end here, India’s tax mechanism levies a surcharge on individuals with earnings higher than Rs.50 Lakhs in an Assessment Year. Surcharges are levied on a percentage-basis of the net tax that is receivable from the taxpayer.

Since Gukesh’s earnings exceed Rs. 5 Crore, he may have to pay a surcharge of 37% on the net tax amount of Rs.3,43,50,000 under the old tax regime. Doing so would accrue him a total tax liability of Rs.4,89,41,460.

However, if Gukesh was to play the right moves, his surcharge liability could be reduced to 25% as per the new tax regime - effectively owing a reduced Rs.4,46,57,000 to the exchequer.

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Prize money is classified as ‘Income from Other Sources’ and does not qualify for specific deductions. However, general deductions like those under Sections 80C to 80U (e.g., LIC, PPF, or health insurance premiums) may be claimed if applicable. The Champion may even claim expenses directly related to earning the prize (e.g., travel, coaching) under Section 57, with donations to eligible charities qualifying for deduction under Section 80G, provided that they are adduced by proper documentation.

Tax in India or Singapore?

Since the World Championship 2024 was held in Singapore, it could so be that the prize money may be taxed in Singapore.The Double-Taxation Avoidance Agreement (DTAA) entered into between India and Singapore prevents cascading of taxes for individuals operating in both countries.

Prize money earned in Singapore, categorized as Other Income may be taxable under Singapore’s domestic laws, and taxes paid there can be claimed as Foreign Tax Credit (FTC) in India. Singapore taxes professional earnings at a progressive rate of up to 22% for individuals. Assuming the prize money of Rs.11.45 crore is taxed at 22%, approximately Rs.2.52 crore would be deducted as tax in Singapore.

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In India, the tax liability on the same income is Rs.4.89 crore, which may be reduced by the FTC for taxes paid in Singapore, resulting in a net tax liability of Rs.2.37 crore. To claim FTC, taxpayers must file Form 67 along with proof of taxes paid in Singapore before submitting their Income Tax Returns (ITR) in India.

The prize money must be declared under Income from Other Sources, and advance tax should be paid in India after accounting for the foreign tax credit.

Statesmen vying to ‘Castle’ Gukesh

While the world celebrated India’s triumphant victory in the global arena, Chief Ministers and social justice warriors on social media have been trying to ascertain Gukesh’s ethnicity and origin.

Tamil Nadu Chief Minister, M.K. Stalin has announced a cash prize of Rs.5 Crore to Gukesh in recognition of the historic win; this announcement comes following a provision of Rs.75 Lakh, also awarded by the Tamil Nadu Chief Minister after the prodigy’s victory in the Candidates Chess Tournament held in Toronto, Canada earlier this year.

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The monetary gains, though given as cash prizes shall still be subject to tax, and possible surcharge as they too exceed the limit of Rs.5 Crore.

Through posts on Instagram and X (formerly twitter), CM Stalin celebrated Chennai’s position as the Global Chess Capital, with the laurels earlier established by five-time World Chess Champion and two-time Chess World Cup Champion Viswanathan Anand who once held a fabled FIDE rating of 2817.

N. Chandrababu Naidu, Chief Minister of Andhra Pradesh was not one to be left behind, tweeting his felicitations for their “very own Telugu boy”.

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These instances led to an onslaught of memes and war of words between white knights engaged in thumb fights, delving into the very ethnic origins and domicile preferences of the champion who presently holds the entire chess world in the palm of his hand.

On equal footing, many hilariously congratulated the Income Tax Department as soon as the details of Gukesh’s winnings were revealed, for the amounts they were set to receive.

While both Tamil Nadu and Andhra Pradesh have produced stellar competitors of the game, Gukesh stands tall for India, being the youngest world champion and the youngest player to have passed a FIDE rating of 2750. Setting aside our parochial regional biases, let us join hands in nurturing such sensational talent and an equally robust taxation system.

A small step for Gukesh, one giant leap for India. Onwards Grandmaster!

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