The Union Budget on February 1, 2023, saw Finance Minister Nirmala Sitharaman address the online gaming sector regarding the clarification of online gaming taxation. The government is “removing the minimum threshold of Rs 10,000 for tax deducted at source (TDS) and clarifying taxability relating to online gaming,” Sitharaman said. Additionally, the government sought to impose a 30 percent tax on net winnings from online gaming platforms.
Commenting on these developments, Sameer Barde, CEO, E-Gaming Federation (EGF) stated that the amendment to sections 194B and 115BB of the Income Tax Act 1961 specifying that TDS be calculated on net winnings and thereby allowing offset of losses are steps in the right direction. “We now await finer details on the computation mechanism so as to bring the amendment into practice. The government is committed to providing a favourable and consistent taxation mechanism for the online gaming industry. At EGF, we look forward to working collaboratively with the government to further bolster the online gaming sector,” he added.
These taxation effects have been considered after the long-continuing debate of distinguishing games of skill from games of chance. According to industry players, the Budget has made a clear distinction between the two and has classified them into separate sections. “With the introduction of two new sections—194BA (for TDS of winnings from online games for online intermediaries) and 115BBJ (for computation of taxes for those who earn income from winnings of online games)—the government has cleared ambiguities regarding TDS calculation for online gaming and simplifies the process for both companies and users,” Vikash Sureka, chief financial officer, Mobile Premier League (MPL), stated. “The Bill allows TDS to be calculated either at the end of the financial year or at withdrawal, streamlining settlements and returns for users. With this change, users who play multiple games will only have to pay tax at year-end based on their net winnings, eliminating the need to pay tax on notional credit. For companies, the TDS calculation process is simpler, improving compliance. This positive step for the skill-gaming industry has us hopeful for continued government support and guidance,” Sureka further added.
The proposed changes lend further clarity to the gaming companies for both taxation as well as the billing process. This is a positive step following the investigation which was undertaken by the Central Board of Indirect Taxes and Customs formations against online gaming companies for tax fraud. “Recognising and carving out a separate clause in the act for ‘online gaming’ as against gambling or betting is in line with MeitY’s recent draft amendment to IT rules for online gaming, and is a testimony to the government’s genuine intent to nurture the burgeoning sector. We are hopeful that the outcome would retain the current 18% tax slab on gross gaming commissions,” Paavan Nanda, co-founder, WinZO games, elaborated.