The Central Board of Direct Taxes (CBDT) has rolled out a new set of tax rules specific to the online gaming industry in India. The primary purpose of these regulations is to streamline and regulate Tax Deducted at Source (TDS) on winnings from online gaming.
New Tax Rules for Online Gaming
A major shift in these tax rules is that there will be no TDS required if a player’s net winning does not surpass Rs 100. This provision offers relief for players who garner smaller winnings.
Furthermore, bonuses, referral bonuses, and incentives offered by the online gaming company are regarded as taxable deposits. These will be taxed under Rule 133 of the Income-tax Act.
Net winnings Calculation Method
In an instance when a user owns multiple accounts, each account will be considered separately for the calculation of net winnings in the online gaming sector. The deposit, withdrawal, or balance in the user account pertains to the total sum across these multiple accounts associated with one player.
Valuation of Winnings
The value of winnings in kind will rely on the fair market value. The exception to this rule is when the online gaming intermediary purchases the winnings before granting them to the user. If the intermediary manufactures items to be given as winnings, again, the fair market value will apply.
TDS Provisions for Online Gaming
To control online gaming transactions, Section 194BA was incorporated into the Income-tax Act, 1961, via the Finance Act 2023. This clause mandates online gaming platforms to deduct income tax on net winnings accumulated in a user’s account.
Impact on Gamers and Gaming Industry
These new regulations, while aiming to streamline the tax process, could result in an increased tax burden on gamers. Professional gamers and streamers may face higher taxes and more complex financial management. Esports organizations might need to revise their financial models and assess the tax implications for different revenue streams.
Understanding TDS
In a TDS scenario, a person (deductor) liable to make payment of a specific nature to any other person (deductee) deducts tax at source and remits it into the central government’s account.
The CBDT Explained
Established as a statutory authority under the Central Board of Revenue Act, 1963, the CBDT operates under the Department of Revenue in the Ministry of Finance. It provides inputs for policy and planning of direct taxes in India and administers direct tax laws through the Income Tax Department.
Other Regulations Pertaining to Digital Assets
The Union Budget 2022 announced the Government of India’s decision to regulate transactions involving Virtual Digital Assets. The Income-tax Act, 1961, now has provisions to oversee investments in cryptocurrencies, NFTs, and other virtual digital assets. Income from digital assets will be taxed at a rate of 30%, and a 1% TDS will apply to transactions involving these virtual assets. Gifts of such assets are also taxable, with no allowances for deductions or exemptions, and losses from transfer of such assets cannot be set off against any other income.