Budget 2023-24: Online gaming companies welcome clarity on taxation

Online gaming firms have welcomed the clarity Union Finance Minister Nirmala Sitharaman provided in Budget 2023-24 on taxation of money won by users. But what has really cheered the industry is the clear definition of what constitutes an online game.

Through the Finance Bill, the government has included section 115BBJ in the Income Tax Act, which defines an online game as one that is offered on the internet and is accessible by a user through a computer resource including any telecommunication device.

Vikash Sureka, chief financial officer, Mobile Premier League (MPL), said the Finance Bill has made a critical distinction between games of skill and games of chance, classifying them into separate sections. This signals the government’s recognition of the unique nature of each and the need for separate tax policies.

“With the introduction of two new sections—194BA (for TDS of winnings from online games for online intermediaries) and 115BBJ (for computation of taxes for those who earn income from winnings of online games)—the government has cleared ambiguities regarding TDS calculation for online gaming and simplifies the process for both companies and users,” he added.

The Bill allows TDS to be calculated either at the end of the financial year or at withdrawal, streamlining settlements and returns for users. With this change, users who play multiple games will only have to pay tax at the end of the year, based on their net winnings, eliminating the need to pay tax on notional credit.

“For companies, the TDS calculation process is simpler, improving compliance. This positive step for the skill gaming industry has us hopeful of continued government support and guidance,” added Sureka.

Paavan Nanda, co-founder of WinZO, said recognising and carving out a separate clause in the act for online gaming as against gambling or betting was in line with the Ministry of Electronics and Information Technology’s recent draft amendment to IT rules for online gaming as well.

“The single most important aspect that the sector awaits clarity on and something that would decide its fate is the outcome from the GoM (group of ministers) on the goods and services tax (GST). We are hopeful that it would retain the current 18 per cent tax slab on gross gaming commissions,” said Nanda.

Sitharaman in her Budget speech said the government will remove the minimum threshold of Rs 10,000 for TDS and clarify taxability relating to online gaming. This would allow real money gaming platforms to assess TDS on net earnings over the year instead of on individual transactions. “It is seen that deductors are deducting tax under Section 194 B and 194 BB of the Act by applying the threshold of Rs 10,000 per transaction and avoiding tax deduction by splitting a winning into multiple transactions each below Rs 10,000,” she had remarked.

Industry insiders agreed that the fact the taxation will be on net winning brings clarity. However, some were of the opinion that since the threshold of Rs 10,000 has been removed it now means that even winning a small amount will attract TDS. “This may impact small players. With a growing base of gamers in India this may have some issues in the immediate term,” said a gaming firm on the condition of anonymity.