During Covid, online gaming as an industry experienced meteoric growth, gaining popularity among the new-age GenZ and millennials. Online games were easily accessible through smartphones, play stations, Nintendo, and Xbox and were nothing short of a best friend in disguise to eradicate the boredom and isolation brought upon by the pandemic.
While the pandemic may have spelled doom for many industries, online gaming boomed exceptionally on the back of easy access and multifarious optionality for end-users. Acknowledging the same, the explanatory memorandum to the Finance Bill 2023 has stated the reason for the introduction of separate provisions for governing online gaming:
“It is also seen that in recent times, there has been a rise in the users of online games. There is a need to bring in specific provisions regarding TDS and tax ability of online games due to its different nature, being easily accessible vide the Internet and computer resources with a variety of playing options and payment options”.
The Finance Bill, 2023 (“Bill”) introduced significant amendments to the tax provisions governing online gaming in India owing to its emergence as one of the most popular activities during the pandemic. This article discusses these new provisions as introduced under the Bill, and since codified under the Income Tax Act, 1961.
Old Provisions under the Income Tax Act, 1961
Under the erstwhile provisions, the Income Tax Act, 1961 regulated online games under the purview of ‘card games and other games of any sort’ under section 194B along with lottery, crossword puzzle, racing including horse racing as well as gambling and betting of any nature. It is to be noted that ‘card games and other games of any sort’ was defined as: “any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game”. Furthermore, section 115BB provided that the income tax would be calculated at the rate of 30% (thirty per cent) on income by winnings from the aforementioned class of games. Additionally, section 194B obligated the person responsible for payment of income by way of winnings, to deduct a tax (at the rate of 30%) on an amount exceeding Rs 10,000 (rupees ten thousand), at the time of payment of income.
New Provisions introduced under the Finance Bill, 2023
The Central Government vide the Finance Bill introduced new provisions that award online gaming an independent status. With respect to income tax, the Bill has introduced section 115BBJ titled ‘Tax on winnings from online games’ which shall come into effect from 1st April 2024. The aforementioned provision has retained the tax slab at 30% (thirty per cent) however, the calculation of income tax, pursuant to the new provision shall be applicable on the ‘net winnings’ from online games.
Further, section 194BA titled ‘Winnings from Online Games’ has been introduced with respect to TDS (effective from 1 July 2023) wherein instead of deducting income tax on winnings from games (pursuant to section 194B), the deduction of income tax shall be applicable on ‘net winnings’ available in the user account. ‘User account’ has been defined under the Bill as ‘account of a user registered with an online gaming intermediary’; and a ‘User’ has been defined as ‘any person who accessed or avails any computer resource of an online gaming intermediary’.
Read the full article here.
For further information, please contact:
Ashutosh Mohan Rastogi, Managing Partner, Amicus
ashutosh@amicusservices.in
