- In the past, there were no specific tax rules for winnings from online games. Many people did not pay taxes on such winnings, and those who did were taxed based on their income from other sources. However, things are changing, and w.e.f. the FY 23-24, a new Section 115BBJ has been introduced by the Finance Act 2023 to tax net winnings from any online games. A corresponding Section194BA has also been inserted w.e.f. 01-07-2023 for the deduction of tax from the net winnings from online games.
- Applicability:
Any person (i.e. online gaming intermediary), who is responsible for paying to any person (i.e. User) any income by way of winnings from any online game during the financial year.
- Rate of TDS: 30%
- Applicable From: 01-07-2023
- Important Points:
- TDS is required to be deducted at the time of withdrawal of the net winning from online games as well as on the remaining amount of net winning in the user A/c at the end of the financial year.
- The tax treatment of rewards (such as joining bonus, referral bonus, incentive, coupon, coin, voucher, etc.) provided by the online game intermediary to the user shall depend on the allowed usage of these rewards.
- The manner of computation of net winning has been prescribed in Rule 133 of the Income-tax Rules, 1962, vide notification no. 28/2023, dated 22nd May, 2023.
- For calculating net winning, ‘User account’ shall include every account of the user registered with the online gaming intermediary and where any taxable deposit, non-taxable deposit, or winnings made by the user is credited and withdrawal by the user is debited.
- If any payment made to the user is in kind or in cash, or partly in kind and partly in cash, and which is not routed from the user account, the net winnings in such a case are calculated by deeming that the money equivalent to such payment has been deposited as taxable deposit in the user account and the equivalent amount has been withdrawn from the user account at the same time.
- No TDS on insignificant winnings. To exempt insignificant withdrawals from the purview of TDS, certain conditions have been clarified. If the following conditions are met, no tax will be deducted on the withdrawal:
- The net winnings included in the amount withdrawn should not exceed Rs. 100 in a month.
- If the net winnings included in the withdrawal exceed Rs. 100 in the same month or subsequent month, or at the end of the financial year, the tax that was not deducted due to this concession will be deducted at that time.
- The deductor (the entity responsible for deducting tax) must be willing to bear the responsibility of paying the difference if the user account balance is insufficient to cover the tax deduction liability as per Rule 133.
CIRCULAR NO. 5 OF 2023 [F. NO. 370142/12/2023-TPL], DATED 22-5-2023
