New TDS provision: IT Department introduces mechanism for calculating net winnings from online gaming

2023-05-22 18:01:55

Central Board of Direct Taxes has come out with a mechanism to prescribe the manner of computation of net winning from online gaming. Experts feel such a mechanism will help capture data in real-time.

This mechanism is in response to the budget announcement about removing the minimum threshold of ₹10,000 for TDS (Tax Deducted at Source) and clarifying taxability relating to online gaming. The new provision has already come into effect from April 1. The new section mandates a person responsible for paying any person any income by way of winnings from any online game during the financial year to deduct income tax on the net winnings in the person’s user account. Tax must be deducted at the time of withdrawal and at the end of the financial year. Now, the manner of computation of net winning has been prescribed.

Read: IT Dept urges winners of online gaming platforms to file, pay taxes ‘voluntarily‘

Multiple wallets under one user

Under Rule 133, the user account will include every account of the user registered with an online gaming intermediary and where any taxable deposit, non-taxable deposit, or the winning of the user is credited and withdrawal by the user is debited. Each user account will be considered for calculating net winnings, and deposit, withdrawal or balance in the user account shall mean the aggregate of deposit, withdrawal and balance in all user accounts.

Net winnings to calculate tax required to be deducted under section 194BA shall be calculated as under: Net winnings =A-(B+C), where A is the amount withdrawn from the user account, B means the aggregate amount of non-taxable deposit made in the user account by the owner of such account during the financial year, till the time of such withdrawal; and C refers to the opening balance of the user account at the beginning of the financial year. Transfer from one user account to another user account, maintained with the same online gaming intermediary, of the same user shall not be considered a withdrawal or deposit

Read: Online gaming to attract investment once tax policy is finalised: Sitharaman

Treatment of Bonus, Referral Bonus, Incentives, etc.

Bonus, referral bonuses, incentives etc., given by the online game intermediary to the user are to be treated as taxable deposits and will form part of net winnings. Deposits of money equivalents, like coins, coupons, vouchers, etc., would be considered taxable deposits and form part of the balance in the user account.

Point of withdrawal

With respect to deductor, any account of a user not registered with the online game intermediary (for which he is a deductor) is an account that is not a user account, and any transfer from a user account to such account is a withdrawal. When in consideration of the amount in the user account, some coupons etc., are issued for the purchase of goods or services, or some item in kind is issued, that will also be considered a withdrawal.

Read: Gaming code pushes for self-regulation

Aravind Srivatsan, Tax Leader, Nangia Andersen LLP, says pursuant to this circular, gaming companies can administer their compliance if pending for April and deposit applicable shortfall in what along with the dues computed for May, which is June 7, 2023, i.e. within a fortnight to avoid penal liability. “Users with multiple accounts across gaming companies may note that having multiple accounts would not spare them from what since the rules are clear on the need to consolidate common user details. In summary, the rules come in the nick of time to administer the compliances and require users to be seized of the rules,” he said.