Online game winnings to attract TDS from April 1: Here’s what players should know
The government's prerogative is to commence collecting new TDS from April 1 on winning proceeds withdrawn from online gaming.
PremiumThe government's prerogative is to commence collecting new TDS from April 1 on winning proceeds withdrawn from online gaming. According to a change made to Finance Bill 2023, starting at the beginning of the next month, online gaming would be subject to Tax Deducted at Source (TDS). Before March 31, 2023, TDS was imposed on winning amounts from online games if they exceeded ₹10,000, but as of right now, online gaming companies are forced to levy a 30% TDS on any earnings that customers choose to withdraw.
Kriti Singh, Chief of Staff, The Dialogue said “The applicability of 30% Tax Deduction at Source (TDS) from net winnings from April 1 comes as a bit of relief for online gaming companies as opposed to the earlier proposed date of July 1, 2023. The Finance Bill 2023 passed on March 24 brought more clarity on the taxation regime for the online gaming sector and a separate taxation regime is also a welcome move. However, removal of the threshold would impose additional liability on the companies to deduct TDS of 30% on each transaction and deter users who deposit small amounts of money. This regime will be very onerous to comply with, for both the users and the online gaming operators for the following reasons:
Currently, the TDS is deducted on any online game winnings exceeding the threshold of Rs. 10,000/-. For example, if a user wins Rs.12000/-, which is more than the threshold, then the user will receive Rs.8400/ (Rs. 12000 minus Rs.3600) on withdrawal. But under the new amendments, now effective from April 1, the threshold has been removed and the TDS deducted will be on net winnings which is aggregate winnings from online game excluding entry fees. For instance, if a user wins Rs. 500/- and has paid an entry fee of Rs.100/-, the TDS deducted will be Rs.500-Rs.100= Rs. 400 (Net Winnings)-and the amount received will be only Rs.400-30%= Rs.280/-, Kriti Singh added.
“While the intention of removal of threshold is to discourage users from avoiding tax by splitting the winnings to keep it below the threshold of Rs.10,000, this could have been addressed through taxation on just net winnings. The high TDS percentage and threshold removal will discourage users to play on legitimate platforms and in turn impact the growth of the industry. Thus, these amendments do not seem to align with the government's intent and mandate of ease of doing business," Kriti Singh further said.
Yash Pariani, CEO and Founder at House of Gaming said “Imposing 28% TDS for online gaming under the current circumstances, wherein, India’s two biggest esports BGMI & Freefire are banned, the tax laws seem to burden the potential growth of online gaming in the upcoming years. The uncertainty on the regulations for the most popular games has previously resulted in a decline in the overall number of major events hosted. Imposing TDS can result in further reduction of investment into gaming sector by advertisers."
Rohit Bansal, Founder, Super4 said “The removal of the threshold for TDS on online gaming winnings, starting from April 1, 2023, is a significant change from the current system, where TDS is only applicable if the winnings exceed ₹10,000 in a financial year. Under the new rule, TDS will be deducted on every rupee earned from online gaming, net of entry fees. The rate at which TDS is deducted on winnings from online games is 30%, which is higher than the TDS rate applicable to other forms of income. This means that players who earn significant winnings from online games will have to pay a substantial amount of their earnings as taxes. As players are getting their winnings after the deduction of taxes. Therefore, it is important for companies to keep track of players' winnings so that appropriate taxes are deducted from every winnings. Overall, the impact of this change on the online gaming industry in India remains to be seen, but it is likely to have a significant impact on players and companies operating in the space."
Anita Basrur, Partner Sudit K Parekh & Co. LLP said “Finance Act 2023 has expanded the scope of withholding tax provisions bringing into its ambit Withholding on winnings from Online gaming. With the provisions being effective from 1st April, government is yet to notify the mechanism and the procedural aspect for doing the compliance. This will create chaos amongst the gaming industry owing to the fact that IPL 2023, amongst other games being played, is set to begin at the end of the financial year and many individuals seek this opportunity to make quick gain. Further, challenges may also be faced whether the earnings are prior to 1st April 2023 and in the absence of any specific guidelines, they may also attract Withholding."
Abhishek Malhotra (Managing Partner TMT Law Practice) said “The government’s decision to enforce the new TDS on winnings from April 1 will allow online gaming companies to comply with taxation requirements with ease, instead of a deference to the old taxation system till July 1. Amidst a flurry of notices from taxation bodies to online gaming operators for perceived irregularities in taxes payable, this revision will allow gaming operators to streamline their operations and compliance processes, and reflects the growing acceptance of the regulators towards online gaming, and build a sustainable future for the gaming industry. With regulatory compliance set to form a major consideration for gaming operators with the incoming revised IT Rules, 2021, gaming operators will welcome this move, to allow them to bring their house in order with the applicable laws."
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