Tax Rules for Online Gaming

26-08-2023

12:34 PM

1 min read

Mains GS-III: Economy

What’s in today’s article?

Why in News?
The Online Gaming Market in India
What is the TDS Provision for Online Gaming?
Example of Online Gaming Tax
How will net Winnings get Calculated if a User has Multiple Wallets?
What are the Guidelines for TDS for Online Gaming?

Why in News?

The Central Board of Direct Taxes (CBDT) has come out with guidelines for Tax Deducted at Source (TDS) for online gaming platforms.

The Online Gaming Market in India:

Types of online gaming:
- e-Sports: These are played online in a structured manner between professional players, either individually or in teams.
- Fantasy sports: These are games in which the player selects a team of real sports players from several teams and earns points based on how well the players perform in real life. For example, Dream11.
- Online casual games:
  - These could be skill-based, where the outcome is heavily impacted by mental or physical skill or chance-based, where the outcome is heavily influenced by some randomised activity, such as rolling a die.
  - A game of chance may be considered as gambling if players bet money or anything of monetary value.
How big is the online gaming market in India?
- Between 2017 and 2020, the industry in India increased at a compound annual growth rate (CAGR) of 38%, compared to 8% in China and 10% in the US.
- The Indian mobile gaming industry's revenue is predicted to exceed $1.5 billion in 2022 and reach $5 billion by 2025.
- According to a FICCI report, transaction-based games revenue increased by 26% in India, while the number of paying players increased from 80 million in 2020 to 95 million in 2021 (by 17%).
Issues: Lack of regulatory oversight, Online gaming - a state subject - resulting in inconsistencies in regulation, Societal concerns - suicides among persons losing big amount of money.

What is the TDS Provision for Online Gaming?

With an aim to track the online gaming industry, the government inserted a new section (194BA) in the Income-tax Act, 1961 through Finance Act 2023.
It mandates online gaming platforms to deduct income-tax on the net winnings in the person’s user account.
TDS will be applicable at the rate of 30% on the net winnings from any online gaming.
Tax is required to be deducted at the time of withdrawal as well as at the end of the financial year.

Example of Online Gaming Tax:

Suppose an user has paid Rs.1,000 as an entry fee to enter an online game and won Rs.40,000 from that.
In such a case, the gaming firm will deduct the user’s TDS on Rs. 39,000 (Rs. 40,000 - Rs. 1,000) at 30%.
Therefore, the user will have to pay a tax of Rs. 11,700, which will get deposited to the government and the remaining balance of Rs. 27,300 will be credited into your account as your income from the win.

How will net Winnings get Calculated if a User has Multiple Wallets?

When there are multiple accounts of a user, each user account shall be considered for the purposes of calculating net winnings.
The deposit, withdrawal or balance in the user account shall mean aggregate of deposits, withdrawals or balances in all user accounts.
Transfer from one user account to another account, maintained with the same online intermediary, of the same user shall not be considered as withdrawal or deposit.

What are the Guidelines for TDS for Online Gaming?

Online gaming platforms will not be required to deduct tax at the source for a player if the net winning does not exceed Rs 100.
The bonus, referral bonus, and incentives given by the online gaming company to the intermediate user will be considered as taxable deposit under the Income-tax Act.

Q1) What is the Central Board of Direct Taxes (CBDT)?

The Central Board of Direct Taxes is a statutory authority functioning under the Central Board of Revenue Act, 1963. The officials of the Board in their ex-officio capacity also function as a Division of the Ministry of Finance dealing with matters relating to levy and collection of direct taxes.

Q2) What do you mean by Tax Deducted at Source (TDS)?

As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government.

Source: No TDS on winnings up to Rs 100: What are the new tax rules for online gaming?