Budget proposes 30% TDS on net winnings in online games, removes threshold for TDS levy

The government on Wednesday proposed to impose a 30 per cent tax on net winnings from online gaming and also do away with the existing threshold limit of Rs 10,000.

The Budget 2023-24 proposed to introduce two new provisions for Tax Deducted at Source (TDS) on online gaming -- levy of 30 per cent on payment of net winnings in a financial year and removal of the current Rs 10,000 threshold for the levy of TDS.

In case the amount is not withdrawn from user account, tax shall be deducted at source at the end of the financial year.

Speaking to reporters after the Budget, Revenue Secretary Sanjay Malhotra said the tax would be on net winnings on the aggregate value.

"When you take out the money from the winning accumulated pool, the withholding tax would be levied on that," Malhotra said.

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The other change in the TDS provision for online gaming was removing the Rs 10,000 threshold.

Malhotra said the move came after it came to the notice of the tax department that some online gaming companies were keeping the winning amount lower than the threshold so that they are not covered under the TDS provision.

Nangia Andersen LLP Partner Sudin Sabnis said online gaming has assumed gigantic proportions in India with revenue of Indian mobile gaming industry expected to reach USD 5 billion by 2025 and has been a subject matter of intense government scrutiny in the recent past from GST and Income Tax perspective.

"The Budget seeks to introduce a withholding tax on entire net winnings of any such user of online gaming platform. The gaming industry would need to revamp its strategy as these provisions along with ongoing discussions in GST Council could impact the user psyche similar to taxation of crypto currencies introduced in the last Budget," Sabnis said.

Tax and consulting firm AKM Global, Tax Partner Amit Maheshwari said two new sections have been proposed with respect to online gaming Section 115BBJ to tax such proceeds at 30 per cent and Section 194BA providing TDS on net winnings in the user account at the end of the financial year.

"Additionally, certain definitions have been provided such as computer resource', 'internet', 'online game', 'online gaming intermediary', 'user', 'user account' in order to avoid ambiguity," Maheshwari said.

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