Gaming firms hail CBDT's online gaming TDS clarifications on bonuses & sops

TDS not to apply if bonuses are used only for playing, or if net winnings do not exceed Rs 100 a month, or if balance in the user account is not sufficient to discharge tax deduction

The recent clarifications for taxation on bonuses and incen­tives received from online games, issued by the Central Board of Direct Taxes (CBDT) on Monday, have been largely welcomed by industry stakeholders. They say it will give a fillip to the burgeoning $2.2-billion Indian online gaming industry.

The apex tax body clarified that any deposit in the form of a bonus or incentive credited to a ‘user account’ will be considered net winnings and will, therefore, be subject to tax ded­u­ction in case of withdrawal. Money-equivalent deposits in the form of coins, coupons, and vouchers will also be taxable.
 

Tax deducted at source (TDS) will not be applicable if said bonuses are used only for playing. Furthermore, tax will not be deducted in cases where net winnings do not exceed Rs 100 per month or if the balance in the user account at the time of tax deduction is not sufficient to discharge tax deduction.
 

“The online gaming industry welcomes the clarification and definition provided by the government in relation to the computation of ‘net winnings’ for online gaming,” says Roland Landers, chief executive officer (CEO), All India Gaming Federation.
 

The clarification comes as part of the guidelines clarifying TDS provisions on income by way of winnings from online games. The Finance Act, 2023 inserted a new Section 194BA in the Income-Tax (I-T) Act, 1961, with effect from April 1, 2023, which mandates online gaming platforms to deduct I-T on net winnings in an online ga­mer’s user account. This tax is required to be deducted at the time of withdrawal, as well as at the end of the financial year.
 

Joy Bhattacharjya, director-general, Federation of Indian Fantasy Sports, says, “The industry is committed to a strong compliance framework and the implementation of the new rules in a time-bound manner.”
 

Ankur Singh, CEO and founder, Witzeal Techn­ologies, says the government’s decision to establish a threshold limit of not subtracting tax on winnings below Rs 100 will ensure compliance for many small players.
 

“The CBDT’s proactive announcement of the non-levy of penal interest on platforms for any April TDS shortfall is also a reassuring step towards facilitating smooth operations,” he says.
 

The clarifications have been issued over a month after the Centre notified new rules for online gaming, which envisaged mechanisms to certify ‘permissible’ real-money online games and prohibit wagering and betting on internet platforms.
 

“In conjunction with the newly released online gaming rules, these developments will play a pivotal role in unlocking the industry’s full potential,” says Sai Srinivas Kiran G, CEO and co-founder, Mobile Premier League. Abhishek Malhotra, managing partner, TMT Law Practice, concurs. “The removal of TDS for withdrawals less than Rs 100 will address a practical reality of the industry, where a dominant number of users do not deposit heavy amounts, and use gaming platforms as a form of entertainment as opposed to any source of income,” he says.
 

Pranav Bagai, CEO and founder, Poker Sports League, believes that the guidelines raise an essential question on the taxation of net winnings across platforms.
 

“Let’s say, as a poker player, I’m playing on three different sites. I find myself up Rs 2,000 on site 1, Rs 2,000 on site 2, but down Rs 1,000 on site 3. The big question is: how will these wins and losses be calculated? Will I be subject to full TDS on sites 1 and 2, and later have to declare my loss on site 3 to claim a tax refund?” he asks.
 

As regards the computation of net winnings on multiple user accounts, the CBDT has clarified that “that user account shall include every account of the user, by whatever name called, which is registered with the online gaming intermediary and where any taxable deposit, non-taxable deposit, or winnings of the user are credited and withdrawal by the user is debited”.
 

Each wallet that qualifies as a user account will be considered a user account. The deposit, withdrawal, or balance in the user account will, in turn, mean the aggregate of deposits, withdrawals, or balances in all user accounts.
 

Deepro Guha, senior manager, The Quantum Hub, is of the view that the new TDS threshold of Rs 100 per month may still be relatively low.
 

“There are provisions related to the creation of separate accounts for non-withdrawable bonuses, incentives, etc. that may lead to additional compliance costs for intermediaries,” he adds.