Stakeholders in the online gaming industry have recently approached the Central Board of Direct Taxes (CBDT) to express their opposition to recent changes in tax deduction at source (TDS) and Goods and Services Tax (GST).
The E-Gaming Federation (EGF), All India Gaming Federation (AIGF), and Federation of Indian Fantasy Sports (FIFS) have asked the CBDT to reconsider the changes to the TDS regime in a letter dated February 23, according to Mint. The new TDS provisions are set to go into effect on April 1. Previously, the online gaming industry deducted TDS on winnings under Section 194B, which had a threshold of INR 10,000 per game after which the tax was deducted at a rate of 30%.
The INR 10,000 threshold will remain in effect until April 1, 2023, but the tax deduction will be available for a user’s annual earnings. In other words, any online gaming winnings made between April 1 and June 30 will be subject to a 30% TDS.
The taxation rule will change again on July 1, with the INR 10,000 threshold for TDS deduction being removed, and any transaction on an online gaming platform attracting TDS.
In their letter to the CBDT, the industry bodies argued that implementing the new TDS regime could lead to ambiguity in how tax would be calculated for the two regimes after March 31.They also stated that it could significantly raise the cost of compliance, making it difficult for small businesses to comply.
The Finance Bill 2023 added two new sections: 194BA for TDS on online game winnings for online intermediaries and 115BBJ for tax computation for those who earn income from online game winnings.
“Whatever your net winnings are, when you withdraw them, you will be taxed on them. TDS was previously levied on winnings of INR 10,000 or more, so some companies kept winnings below INR 10,000. As a result of this change, there is no TDS threshold,” said Sanjay Malhotra, revenue secretary in the Ministry of Finance.
The online gaming industry, which has produced unicorns such as Dream11, MPL, and Games24X7, has seen rapid user growth in recent years. According to a report by gaming and interactive media-focused VC fund Lumikai, the number of gamers in the country rose 12% to 507 million by March 2022 (24% were paying users) from 450 million in March 2021.