TDS on winnings from online games for online intermediaries & taxes for those who earn income from such winnings

In the Union Budget 2023, the government has announced amendments to sections 194B and 115BB of the Income Tax Act 1961 and specified that tax deducted at source (TDS) will be calculated on the net winning amount (at the time of withdrawal) and will allow for the offset of losses. The minimum threshold limit of Rs 10,000 for calculating the TDS has also been removed. Two new sections in the Income Tax Act were added – 194BA for TDS on winnings from online games for online intermediaries and 115BBJ for computation of taxes for those who earn income from such winnings.

Ranganath Tannir, Secretary General, Think Change Forum, said, “We applaud the Finance Minister for taking a progressive stance on online gaming sector. More than the positive financial impact for players of online games, this is a bold step towards destigmatizing and normalizing online skill games industry by unbundling it from betting or gambling activities. We hope that this momentum would be sustained by all other arms of the Government, particularly the GST council and online skill based games will continue get a separate treatment”.

More than the positive financial impact for players of online games, this is a bold step towards destigmatizing and normalizing online skill games industry by unbundling it from betting or gambling activities. We hope that this momentum would be sustained by all other arms of the Government, particularly the GST council and online skill based games will continue get a separate treatment

Think Change Forum believes that the removal of the minimum threshold limit of Rs. 10,000 for calculation of TDS would however disrupt the current online gaming ecosystem in the short run, as now all players would become liable for TDS irrespective of their scale and exposure. Think Change Forum, therefore proposes a simplified KYC norms for online players in the detailed rules and statues to be notified subsequent to the Budget 2023 announcements.

Explaining this, Tannir said “Earlier earnings from online gaming activities was treated as a special income and subjected to penal taxes. Removal of this distinction and recognizing income from online games at par with stock market or real estate or any other activity and allowing offsets is a big change. However, the new announcements also take away the ease for smaller players with less than Rs. 10,000 ticket size to play without compliances. We need to wait and watch to see if the detailed rules introduce a simplified KYC norms soon enough, as has been announced by the Finance Minister in her budget speech”

Think Change Forum, to enable the growth of a robust gaming hub in India had provided a set of recommendations to the government in December 2022.  The recommendations had asked for a clear and consistent approach to personal taxation for providing clarity to gamers and the industry. Online gaming activities in India were being governed by archaic 50-year old income tax laws which were set up at a time nobody could imagine that such a sector will take shape in the future. In this context, the Forum had specifically asked for overhauling sections 194B and 115BB of the Income Tax Act, 1961 which has now been changed. 

The Government was urged to provide relief to online gamers so that the taxes that they paid does not go beyond their earnings. The recommendations highlighted that India accords special treatment to income from gaming activities in sharp deviation from global practices. Such discrimination should be done away with, and such activities should be brought at par with other high-risk income generating activities such as stock market and trading, where offset for costs and losses are permitted.