TDS guidelines for gaming companies may require greater disclosure

The move is aimed at improving reporting and transparency in these sectors

The revenue department is preparing detailed guidelines on the taxability of the online gaming sector in a bid to ensure that the game host deducts tax on the entire winning amount even if it offers the sum in the form of coupons, tokens, or as other non-cash payments, said a senior government official in the know.

For this, online gaming companies may be required to furnish detailed disclosures, including prize pool, dates on which winnings were paid or credited to players, and mode of the prize -- whether in cash or as other considerations, under the TDS provision. TDS stands for tax deducted at source.

The move is aimed at improving reporting and transparency in the new-age sector, the official said. This should help the revenue department to keep a check on the money spent and earned from such activities and whether there is any tax avoidance.

Both game hosts and winners might be asked to furnish a set of information in a given format, the official said.

The host, according to the source, would have to maintain details for the purpose of TDS filing, while the winner might be asked to furnish tax returns based on income from winnings, irrespective of his/her tax threshold.

The new rules in the works are expected in the upcoming Union Budget, the official indicated said that certain clarification would also follow to weed out the ambiguity.

At present, gross winnings from gaming, betting, lottery, etc, attract flat 30 per cent tax. Gaming firms are required to deduct TDS at the rate of 0.1 per cent for winnings of over Rs 10,000.

The tax department is of the view that several gaming firms are not TDS-compliant because of certain deficiencies and loopholes in the current provision. “We have identified the loopholes and are aiming to address each of them,” said another official privy to the plan.

The current TDS provisions, according to the official, do not efficiently capture winners and host transactions, especially if the winning amount is split in non-cash or a mix of cash and other considerations.

Besides, the tax department has come across instances of collusion between gaming firms and participants, especially winners. In some cases, the winning amount gets credited to multiple accounts of the player.

The department is also contemplating whether banking channels can be alerted in case of money being credited by overseas firms. This is for gaming portals that are based overseas and do not come under the TDS purview.

Typically, there are intermediaries in India that remit the payment and they need to deduct TDS from the final payment to the winner. But, there are a few gaming firms that do not have an intermediary, another tax official said.

“A view that the provisions of TDS as currently worded apply to only games of chance and not of skill. Based on this, many gaming companies also do not deduct tax. While TDS is a good way of collecting cash upfront, it comes at an overall cost to business. The burden of administering tax also falls on the business. Instead, the tax department may make it mandatory to provide information in a format that can be incorporated into the AIS (Annual Information Statement) system,” said Rohinton Sidhwa, a partner at Deloitte India.

Online gaming companies have been under tax scanner for the past few months following the detection of instances of tax evasion. Based on the revenue department’s estimates, there could have been a possible tax evasion of about Rs 30,000 crore in the past few years.

Gaming the system

• Rs 30,000 cr estimated tax evasion in connection with online gaming in the past few years
• 0.1% TDS on winnings of over Rs 10,000
• 30% tax on gross winnings from gaming, betting, lottery, etc
• Current TDS provisions don’t efficiently capture transactions, especially if the winning amount is split in non-cash or a mix of cash and other considerations
• Guidelines may ask online gaming firms to give details of prize pool, date of winnings, & prize mode
• The winner may now have to furnish tax returns incorporating the income from winnings, irrespective of his/her tax bracket