The Central Board of Direct Taxes (CBDT) has finally issued guidelines for Tax Deducted at Source (TDS) on online gaming platforms, bringing clarity to the taxation process. However, concerns have arisen among these platforms regarding the potential impact of taxation on their user base.
The CBDT released a notification on May 22, 2023, outlining the computation of net winnings in Rule 133 of the Income-tax Rules 1962, addressing the taxation of online gaming winnings.
Key Points from the Guidelines
According to the guidelines, if a user has multiple wallets on a gaming platform, all accounts associated with the user will be considered for calculating net winnings and deposits.
The net winnings of an online gamer will be determined by deducting the total deposits made during the financial year and the opening balance in the user’s account at the beginning of the year from the amount withdrawn during the year.
The CBDT has set a threshold of INR 100 for tax deduction on winnings from online gaming. In other words, online gaming platforms will not be required to deduct TDS for a user if the net winnings withdrawal does not exceed INR 100.
Furthermore, any deposit in the form of bonuses or incentives credited to a user account will also be considered as net winnings and will be subject to tax deduction upon withdrawal.
While the introduction of Rule 133 and the issued guidelines provide clarity on most aspects of computing tax on net winnings in online games, the treatment of bonuses and promotions may require further clarification, according to technology and gaming lawyer Jay Sayta.
Concerns over Decline in User Base
Online gaming platforms are apprehensive that the taxation on winnings may negatively impact their user base.
Jaya Chahar, founder and CEO of fantasy gaming platform TFG, stated that while taxation rules previously had certain loopholes, the latest guidelines increase taxation for users and liabilities for gaming platforms. Chahar believes that this may lead to a decline in online gamers but also showcases the sector being regulated and recognized.
Bharat Patel, chairman and director of IPO-bound game development company Yudiz Solutions, shares a similar view, stating that the new taxation guidelines may result in a reduction in user participation. However, Patel believes that the guidelines will enhance transparency in the sector, benefiting both users and regulatory bodies by conveniently tracking winnings and investments.
As the implementation of the guidelines unfolds, the online gaming industry will closely monitor the potential impact on user engagement and the overall landscape of the sector.
