Budget 2023-24: Net winnings from online games to attract 30% TDS

Proposes 30% tax on net winnings, removes threshold of Rs 10,000

The government has proposed a 30 per cent tax on “net winnings” from online games. It also removed the existing minimum threshold limit of Rs 10,000.

Earlier, tax deducted at source (TDS) was calculated on the minimum threshold limit.

The proposed move will ensure that the game host deducts tax on the entire winnings even if it offers the sum in the form of coupons, tokens, or any other non-cash payments.

The Budget has introduced two new provisions for TDS on online gaming. These are levy of 30 per cent on payment of net winnings at the time of withdrawal or at the end of the financial year. The other is removal of the current Rs 10,000 threshold for the levy of TDS.

However, for lottery and crossword puzzle games, among others, the threshold limit of Rs 10,000 for TDS will continue.

Revenue secretary Sanjay Malhotra said during a post-Budget briefing that, “Taxation will now be on net winnings since the nature of online gaming is such that one plays several games in a series.

Explaining the rationale of removing the threshold, he said that some companies were keeping the winnings lower at Rs 10,000, to avoid the TDS provisions. So, we have removed that now, he added.

“The gaming industry would need to revamp its strategy as these provisions, along with ongoing discussions in the GST Council, could impact the user psyche. This is similar to taxation of crypto currencies introduced in the last Budget,” said Sudin Sabnis, partner, Nangia Andersen LLP.

Any withdrawals on net winnings during the financial year will be subject to TDS.

Further, there is no specific threshold limit applicable to online gaming and it casts responsibility on person responsible for paying the winnings in case the cash part is not sufficient to cover the taxes of in-kind

Notably, the winnings from online mobile games are taxed under the head ‘income from other sources.’

Amit Maheshwari, tax partner, AKM Global, said the Finance Bill also clarified on certain definitions such as computer resource, internet, online game, online gaming intermediary, user, and user account in order to avoid ambiguity,” Maheshwari said.

Recently, the IT ministry proposed to regulate online gaming and plans to formalise a structure. The plan has been in the works for some time since the Centre set up an inter-ministerial task force to regulate the sector. The GST Council is also working on the rules to clarify GST implications on the sector.