CBDT Issues Taxation Guidelines For Online Gaming Platforms

The Central Board of Direct Taxes (CBDT) on Monday clarified any deposits in the form of bonuses or incentives credited to a user account will be considered net winnings, and subject to a tax deduction, in case of withdrawal.

This is in line with the new TDS rule on online gaming, effective from 1 April 2023.  

It said, if a bonus or incentive is used only for playing, then it’s not liable for tax deduction at source (TDS). While the applicable tax will not be deducted in case net winnings do not exceed Rs 100 a month. Subsequently applicable to cases with an insufficient user account balance at the time of tax deduction.

According to the new rule a person, who is responsible for paying any other person any income by way of winnings from any online game during the financial year is liable for an income tax deduction on net winnings in the person's user account.

Tax deduction during withdrawal and at the end of the financial year will be mandatory, it added.

Clarifying the treatment of bonuses or incentives by online gaming intermediaries to the user, it said money equivalent deposits like coins, coupons, vouchers will be considered taxable deposits.

The apex body clarified, valuation will be based on the fair market winning values, except in cases where the online game intermediary has purchased the winnings before providing them to the user. In that case, the purchase price will be the value of the winnings.

It further underlined in case the user borrows the money and deposits it in his/her user account, it will be considered a non-taxable deposit.

With respect to the computation of net winnings on multiple user accounts, the CBDT clarified that it would be mandatory for the user to include every account name registered with the online gaming intermediary, applicable to any taxable deposit, non-taxable deposit or winnings, wherein the user is credited or is debiting the amount.

Thus, each wallet that qualifies as a user account shall be considered a user account for the purposes of computing net winnings. The deposit, withdrawal or balance in the user account will mean the aggregate of deposits, withdrawals or balances in all user accounts.

Clarifying the GST, CBDT further stated that it will not be included for the purposes of valuation of winnings for TDS under Section 194BA of the Act.

Till 31 March 2023, TDS online games winning was applicable if the prize amount exceeded Rs 10,000 in a financial year, a 30 per cent of TDS deduction.