New Taxation Rules for Online Gaming

The Budget 2023 made some changes to the taxation of online gaming.

Earlier, the government had announced that Tax Deducted at Source (TDS) on online gaming would be applicable from July 1, 2023. However, the government made a change to the date of applicability to April 1, 2023 while passing the Finance Bill in Lok Sabha. TDS will be deducted on winnings from online games for every rupee earned, net of entry fees (if any), at a rate of 30%.

For instance, if someone wins Rs 35,000 after paying an entry fee of Rs 1,000, the online gaming company would deduct TDS on Rs 34,000 (Rs 35,000 minus Rs 1,000). The tax of Rs 10,200 (Rs 34,000*30%) would be deposited to the government and the balance Rs 23,800 would be credited to the individual account. This step will help in proper compliance with TDS provisions for online gaming.

Additionally, winnings from online mobile games are taxed under the head 'Income from other sources'. It is important to note that irrespective of whether TDS is deducted or not from online gaming winnings, one is required to report them in their income tax return and pay income tax accordingly.

The government proposed that if someone fails to file their returns for TDS on online gaming and their TDS amount exceeded Rs 50,000 in the previous year, then the TDS would be deducted at a double rate.

This means that they would be penalized with a higher TDS rate for not complying with the rules. The amendment was accepted, which means that gaming operators may need to ask users to provide proof and make sure they follow the rules to avoid the penalty.

The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.