Tax on Online Gaming in India
The online gaming industry in India has seen massive growth in the last ten years and is expected to grow to $5 billion by 2025. The use of online gaming platforms, including card gaming platforms, battlegrounds, sporting games, and quizzes, has resulted in offering real money to its players.
Recently, the three bodies of the online gaming industry, namely, the E-Gaming Federation (EGF), Federation of Indian Fantasy Sports (FIFS) and All India Gaming Federation (AIGF), approached the Central Board of Direct Taxes (CBDT) to reconsider TDS regime changes that have been effective from 1st April 2023.
Hence, this article will give you in-depth information about India's online gaming industry, its taxation policies, and any potential adjustments.
Tax on winnings from online games
Presently, online gaming organisations charge 30% TDS on any winnings drawn by a user above Rs.10,000 per transaction. The threshold of Rs.10,000 is still in place as of 1st April 2023, but now the taxation will depend on the annual income of the game user.
As per Finance Bill 2023, Sections 115BBJ and 194BA have been introduced to tax the user's winnings on different gaming platforms.
- Under Section 115 BBJ, income tax would be charged on net winnings for the previous fiscal year at a rate of 30%.
- Section 194BA mainly deals with TDS applicable on net winnings in the user's gaming account at the end of the fiscal year. So, your net winnings from online gaming platforms at the end of a fiscal year would be taxed at 30%.
The introduction of these sections suggests that in the coming days, TDS might also be applicable on winnings below Rs.10,000.
Example of online gaming tax
Suppose you have paid Rs.1,000 as an entry fee to enter an online game and won Rs.40,000 from that. In such a case, the gaming firm will deduct your TDS on Rs. 39,000 (Rs. 40,000 - Rs. 1,000) at 30%. Therefore, you will have to pay a tax of Rs. 11,700, which will get deposited to the government and the remaining balance of Rs. 27,300 will be credited into your account as your income from the win.
Basis of revenue collection and their chargeability
Some of the key sources of collecting revenue through online gaming and the applicability of tax policy on them are discussed below:
- Contest entry amount (CEA) and gross gaming revenue
The government has proposed to levy a GST of 28% on the Gross Gaming Revenue (GGR) of online gaming. As per the latest reports, 18% GST is charged simply on the CEA, but the proposed rate is higher. According to the co-founder of Winzo Games, Saumya Singh Rathore, the online gaming industry has the potential to become a big part of the Indian economy, but enforcing 28% GST will untimely hold back this sector.
- Winning real money from online games
Different online gaming platforms such as Ludo Empire, Dream 11 and others provide a chance to win real money for players. This income is taxable under the heading of 'Income from other sources' under Sections 115BBJ and 194BA. A flat rate of 30% gets charged without the inclusion of any threshold.
- Distribution during game tournaments
Winnings from different gaming tournaments are also charged under Sections 115BBJ and 194BA, as discussed above.
- Referral and joining bonuses
Any real money received as a joining or referral bonus is not taxable under the mentioned sections. It is taxable on a net basis as per the slab rate applicable for individuals. No tax will be payable if the earned income is below the maximum chargeable tax amount.
*Note: The taxable rate and applicable Sections may change per the proposed provisions of online game taxations.
Comparison of current and proposed provisions on online gaming taxation
| Particulars | Current Provisions | Proposed Provisions |
| Relevant provisions | Taxation of winnings - 1115BB TDS - 194B | Taxation of winnings - 115BBJ TDS - 194BA |
| The minimum threshold for TDS | Rs.10,000 | No provision of threshold |
| Effective dates | Taxation of winnings - Up to 31st March 2023 TDS - Up to 30th June 2023 | Taxation of winnings - From 1st April 2023 TDS - From 1st July 2023 |
| Rates of TDS | Rates in force - 30%* | Rates in force - 30%* |
| Timing of TDS | Applicable during the payment of winnings | Annually - Net winnings in the user account will be subject to prescribed withholding tax at the end of the financial year. For withdrawals during the year - Prescribed TDS will be deducted from net winnings at the time of withdrawal and from the remaining net winnings in the user account at the end of the financial year. |
| Winning in kind | Before releasing innings, the payer must ensure that taxes get paid on them. | The online gaming platform must ensure taxes get paid on net winnings before releasing them. |
| Rate of income tax on such winnings | 30%* | 30%* |
| Quantum of income to be taxed | No specific guidance is available on the taxation of gross winnings in relation to net winnings. | Income tax and TDS needs to be computed on net winnings. The calculation process for net winnings will be prescribed later. |
*Plus applicable cess and surcharges
Final word
The imposition of tax on online games is mandatory, irrespective of the amount you win. The rapid growth of the online gaming industry is compelling the Indian government to bring changes in tax rates, GST and applicable thresholds.
However, the changes proposed on GST rates can negatively impact the growth of the Indian gaming sector, as a 28% GST levied can discourage players. But as this industry is rapidly growing at both Indian and global levels, we can only hope that the Indian government will take action to boost this sector and impose fair GST and tax rates on the participants.
Quick Summary
The online gaming industry in India has shown significant growth and taxation policies are evolving, with proposed changes in TDS and GST rates. Revenue sources and their tax implications, such as winnings, contest entry amounts, and game tournaments, are outlined. Comparisons are made between current and proposed tax provisions. Challenges remain, including potential negative impacts of high GST rates on the gaming sector's growth.
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