The Central Board of Direct Taxes (CBDT) recently issued guidelines for tax deduction at source (TDS) for online gaming companies effective from July 1, 2023. As per the detailed guidelines. Winnings of individual less than Rs 100, will not be taxed. However bonuses, referral incentives, and other such inducements shall be considered in the taxable amount subject to TDS. Furthermore, TDS would be applicable when the withdrawal amount exceeds Rs 100 in the month or the following month. However, if there is no withdrawal, the TDS would be deducted at the end of the financial year.
Effective from July 1, 2023, the Central Board of Direct Taxes (CBDT) has released comprehensive guidelines pertaining to Tax Deducted at Source (TDS) on earnings exceeding Rs 100 from online gaming activitiesThe guidelines are for online gaming companies on how to deduct tax deducted at source (TDS) from the winnings of an individual. The guidelines have been issued as a part of the TDS threshold removal on winnings from online games in the Union Budget announcement earlier this year. “The industry appreciates the open and transparent consultation process undertaken by the CBDT for the rules and addressing the concerns of the industry and the 50 crore online gamers. The industry is committed to a strong compliance framework and implementation of the new rules in a time-bound manner,” Joy Bhattacharjya, director-general, FIFS, said.
Early this year, during the Union Budget, the threshold of Rs 10,000 was removed. Earlier, TDS was applicable only if the net winnings exceeded Rs 10,000. The TDS rate on winnings would be at 30% as it is deducted in accordance with Section 194BA of the Income Tax Act, 1961. The new guideline suggests that if the winnings are under Rs 100 a month, TDS would not be applicable for the same. However, if the winnings exceed Rs 100, then 30% TDS would be applicable to the winnings. “Previous sections of taxation had certain loopholes. Current guidelines increase not only taxation on net winnings for users but also liabilities for the gaming platforms. In my view, while this may lead to a certain dip in online gamers/users in general, it showcases the sector being regulated and recognised. As a fantasy platform, we have made necessary changes at the back end to comply and are ready to abide,” Jaya Chahar, founder and CEO, TFG said.
According to a report by Lumikai, India has witnessed a massive boost in the number of game downloads. The Indian gaming user base contributed to 15 billion downloads in FY22, as India became the largest consumer of mobile games globally. India’s gaming market is expected to hit $8.6 billion by FY27. The number of gamers in India stood at 507 million in FY22, out of which 120 million were paying gamers. Industry experts opine that there is possibility of drop in the volume of gamers with the implementation of new guidelines. “The new rule to enhance transparency and regulation for the industry will help both users and regulatory bodies to track the winnings and invested amounts conveniently. However, this ruling might have its own drawbacks and may lead to reduced participation. Also, it will take time to observe the far-reaching consequences of these new tax regulations on the gaming industry,” Bharat Patel, chairman and director, Yudiz Solutions explained.
A Dentsu report stated that post the introduction of 30% TDS, it looks increasingly difficult that Indian gamers would be able to reach 700 million. As per the report, the number of Indian gamers is expected to hit 700 million by FY25 growing at a compound annual growth rate of 12%. CBDT also clarified that under Section 194BA, GST would not be included when calculating winnings from online games for TDS. “The new guidelines provide clarity on most aspects of computing tax on net winnings in online games, except perhaps the issue of bonuses and promotions given to users, which may require further clarification from the department. Although the changes in the TDS provisions in the Finance Act coupled with the new rules and guidelines do not per se reduce the taxation on players and rather increase compliance burden on online gaming platforms,” Jaya Satya, a technology and gaming lawyer, said.
TDS would be applicable for different accounts despite a single player owning them. Every account would be taxed separately.
“It is important for users with multiple accounts across different gaming companies to be aware that having multiple accounts does not exempt them from TDS. The regulations explicitly require the consolidation of common user details, emphasising the need for compliance with withholding tax obligations. These measures reflect the government’s commitment to promoting transparency and accountability within the gaming industry,” Roma Priya, founder, Burgeon Law said.
Bonus, referral bonus and other benefits, even though, given by the gaming company would also be taxable since the bonus increases the balance of the user’s account.