Any bonus, referral bonus or incentive given by an online gaming intermediary to a user will be considered as taxable deposits, the Central Board of Direct Taxes said on Monday.
“The taxable deposit will increase the balance in user account and is not allowed to be deducted in calculation of net winnings as only non-taxable deposits are allowed to be deducted. Thus, any deposit in the form of bonus, referral bonus, incentives etc would form part of net winnings and tax under section 194BA of the Income Tax Act is liable to be deducted at the time of withdrawal as well as at the end of the financial year,” said the CBDT in a circular.
The idea behind the move is to remove the difficulties for computing taxes made on winnings from online gaming. However, in case the incentives or bonus is only for the purposes of playing and cannot be withdrawn or used for any other purposes, it would not be included in the taxable amount or net winnings.
Finance Act 2023 inserted a new section 194BA in the Income-tax Act, 1961 with effect from April 1, 2023. The new section mandates a person, who is responsible for paying to any person any income by way of winnings from any online game during the financial year to deduct income-tax on the net winnings in the person’s user account. Tax is required to be deducted at the time of withdrawal as well as at the end of the financial year. The CBDT in the circular has also prescribed the manner of computation of net winning in Rule 133 of the Income-tax Rules 1962.
Where the net winnings are wholly in kind or partly in cash, and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax, the deductor will ensure that tax has been paid in respect of the net winnings. “In the above situation, the deductor will release the net winnings in kind after the deductee provides proof of payment of such tax such as income tax challan details,” said the CBDT.
The valuation of winnings in kind would be based on the price of the prize paid by the online gaming intermediary. In case the intermediary manufactures these prizes, it would be based on the value of the winnings, it further said. It has also clarified that the tax will not be deducted on withdrawal of net winnings of less than `100 in a month or where the balance is not sufficient to pay the tax. Further, goods and services tax will not be included for the purposes of valuation of winnings for TDS.
The CBDT also said that each wallet which qualifies as user account shall be considered as user account for the purposes of computing net winnings. So even if a user has multiple accounts, each account will be considered for the purpose of calculating the net winnings. The Union Budget 2023-24 had proposed a flat 30% rate on online gaming.