REASON FOR THE AMENDMENTS:
The online gaming sector in India has witnessed substantial expansion in recent times and continues to grow. Numerous companies like Rummy Circle, Dream11, PokerBaazi, and others operate within this industry.
Capitalizing on this trend, the Indian government introduced new provisions under the Finance Act 2023 to tax earnings from online games. The relevant charging section is 115BBJ, and the Tax Deducted at Source (TDS) section is 194BA.
GAMES THAT ARE INCLUDED:
Any game that can be accessed through internet by the user, which involve actual money or currency to play and allowing the same to be withdrawn by the user upon winning the game are included. e.g., Rummy circle.
SECTION 115BBJ:
- Winnings from online games shall be charged to tax under this section of Income Tax Act 1961
- This section is applicable from 1stapril 2023 onwards.
SECTION 194BA:
- Any person who is in charge or responsible for paying any amount to the person winning through online games during the financial year is liable to deduct the TDS on net winnings either during withdrawn and end of financial year under Income Tax Act, 1961
- The applicable rate of TDS shall be 30% of the amount withdrawal of Net winning money (No threshold limit)
- Net winning money= A-(B+C)
Explanation:
A= Amount withdrawn by the user
B= Aggregate amount of non-taxable deposit made by the user
during the financial year till the time of withdrawal.
C=Opening deposit made by the user
- This section was applicable from 1stjuly 2023. The computation manner is provided under rule 133.
Other explanation:
1.Any person means the one making payments of winning or online gaming intermediary
2.the person playing online game is the user and he will be given separate identity called user account to make payments, etc.
Important points:
Multiple user: whenever there is multiple user account of the same user, each user account shall be considered for the purpose of calculating net winnings and the deposit, withdrawal or balance in the user account shall mean aggregate of deposit, withdrawal or balance in all user accounts.
Transfer of money: whenever there is multiple user account of same user, transfer from one user account to another, maintained with the same online intermediary of the same user shall not be consider as withdrawal or deposit for the purpose of Sec194BA.
Example:
Mr. Hari has 5 different user accounts on dream11 with 5000 balances in each account. Therefore for the purpose of calculating deposit it would be treated as on account and taken as 25,000 of deposit.
MISCELLENIOUS CASE:
XYZ LTD is a gaming company that owns many different platforms for different games such as Ludo, cricket and rummy. Hari has different user account in each platform separately. Whether it will be considered as one or not?
Account in different platforms will not be treated as single account. It is treated as separate account.
CASE:1
XYZ gaming company purchased two wheeler of Rs.1,18,000 including GST of 18% to gift HARI, the best player of season. What is the amount of TDS should Hari deposit?
In this case Hari should deposit 30,000 as TDS to XYZ gaming company. As per rule 133, the valuation of kind if the company purchase it from others it should exclude GST.
Calculation
Removing GST: 1,18,000/18% = 1,00,000
Calculating TDS: 1,00,000*30%=30,000
CASE:2
ABC gaming company manufacture screens as another and it wants to give some of its online players free gaming screen. At what price the TDS should be deducted?
As per rule 133, if the gaming manufactures and it want to give its products as winning items then, it should deduct TDS at the value it will sell to its customer
EXCEPTION:
It is clarified that tax may not be deducted on withdrawn on satisfaction of all of the following condition, namely
- Net winnings comprised in the amount withdrawn does not exceed 100 in a month
- Tax not deducted on account of this concession is deducted at a time when the net winnings comprised in withdrawal exceeds Rs100 in the same month or subsequent month or if there is no such withdrawal, at the end of the financial year; and
- The deducter undertakes the responsibility of paying the difference if the balance in the user account at the time of tax deduction u/s 194BA is not sufficient to discharge the tax deduction liability calculated in accordance with rule 133.
Illustrations:
- Hari opens an account in rummy circle with an opening deposit of 5000 and he add 20000 to his account in order to play he wins 50000. Hari plans to withdraw the winnings of 50000. What is the TDS to be deduct?
Action | Amount (INR) | TDS Rate | TDS Deducted (INR) |
|---|---|---|---|
Opening deposit | 5000 | – | – |
Another deposit | 20000 | – | – |
Amount withdrawn /winnings | 50000 | 30% | 7500 |
Note: if the sum of amounts B and C is equal to or greater than the amount A, net winnings should be considered as zero.
- Bala opened an account with Rummy Circle by depositing 5,000 initially, and subsequently adds 20,000 to his account for playing purposes. He accumulates winnings of 50,000 and withdraws 30,000 in July. Later, in November, he wins 1,00,000 and withdraws the entire amount in December. What is the TDS amount that needs to be deducted?
Action | Amount (INR) | Amount on which TDS to be deducted | TDS Rate | TDS Deducted (INR) |
|---|---|---|---|---|
Opening deposit | 5,000 | NA | – | – |
Another deposit | 20,000 | NA | – | – |
Winnings | 50,000 | NA | ||
Amount withdrawn in July | 30,000 | 30,000 | 30% | 1500 |
Winnings | 1,00,000 | NA | ||
Balance amount available | 1,20,000 | NA | ||
Amount withdrawn in December | 1,20,000 | (1,20,000-(5000-20000-30000) | 30% | 19,500 |
Author
Fareed
Frequently Asked Questions
Any amount deposited by the user from his bank account, Upi, cards etc. are non-taxable income. In other word the money deposited from taxable income is non-taxable deposit.
Deposit made from borrowed money is non-taxable deposit.
The incentives and bonus given by the company are taxable deposit. Therefor no deduction.
The amount equivalent to the value of voucher, coins are taxable upon withdrawal.
it is to be ignored.
The gaming company should ask the user to deposit, TDS amount equivalent to FMV of kind.
e.g., If the company gives car with FMV of 10,00,000 it should ask the user to deposit 3,00,000. (10,00,000*30%=3,00,000)
Taxpayers were expected to deduct tax at source under section 194BA even before issuance of the Rule 133 or this guidance. It is expected that they have carried out that responsibility. However, if there is a shortfall in deduction of tax due to time lag in issuance of Rule 133 or this Circular, for the month of April, 2023 that shortfall may be deposited with the tax deduction for the month of May 2023 by ih June 2023. In that case there will not be any penal consequences
