Taxation and Online Gaming
In the latest Union Budget 2023-24, the finance minister introduced new rules of taxation on the booming business of online gaming.
Key tax provisions for online gaming in Union Budget 2023
- Removal of minimum threshold of Rs. 10,000 net winning from online gaming for TDS to be charged.
Section 194BA of the Income Tax Act 1961 was introduced containing provisions relating to tax deducted at source (TDS) on online gaming. This section states that TDS will apply to all net winnings (irrespective of the amount earned). The earlier threshold of Rs. 10,000 has been done away with. This section will become effective with effect from 1st July 2023.
- 30% tax on ‘net winning’ from online games.
Section 115BBJ of the Income Tax Act 1961 was introduced containing provisions for taxation on online gaming. The clause to the explanation also defines ‘online game’ to mean a game that is offered on the internet and is accessible by a user through a computer resource including any telecommunication device’. The said section shall become applicable with effect from 1st April 2024.
- Earlier, TDS @ 30% was applicable on net winnings from online gaming subject to a threshold of Rs. 10,000. This meant that up to Rs. 10,000 there was no TDS. It became applicable once the net winnings equalled or crossed Rs. 10,000.
- The above provision stands revised in the Budget 2023-24. The minimum threshold limit of Rs. 10,000 has been removed. This means that even if the net winnings from online gaming are less than Rs. 10,000, tax @ 30% will become applicable.
Points to be kept in mind
- Such tax will be charged on ‘net winnings’ at the end of the financial year. During the budget presentation, the finance minister clarified that ‘net winnings’ would be taxed as usually people play a series of online games.
- The onus of realizing tax is on the service providers of online games / gaming platforms.
- Winnings from online gaming shall be declared under “Income from other sources”.
In January 2023, the Ministry of Electronics and Information technology (MeitY) released an e- gaming policy aimed at streamlining / regulating the rapidly growing online gaming business. A look at the highlights:
- Legalize the e-gaming / online gaming – e-sport industry by recognizing it as part of mainstream gaming / sports
- Ministry of Electronics and Information technology (MeitY) made the nodal agency for all online gaming / e-sports /e-gaming related issues.
- Establish one or more self-regulatory bodies that govern the e-gaming industry.
- Make mandatory the KYC of all online gamers / player in line with the RBI guidelines on KYC.
- Ensure data protection, data privacy of online gamers / players, secure payment online. This will promote transparency and safety for players.
- Setting up grievance redressal mechanism for online gaming / e-sporting related matters.
Online gaming: the sunrise sector
Despite the pandemic and resultant economic instability, the online gaming / e-sport sector continued to generate high revenues. Revenue from the sector is expected to cross the 150 billion mark in 2023. The introduction of regulations as well as taxation is seen as a welcome move to streamline the working of the sector, bring about and maintain balance between compliance and growth in the gaming ecosystem.