All the income earned through winnings from lottery, crossword puzzle, gambling, betting, horse racing and any similar nature were taxed under section 194B of the Income Tax Act, where the payer of such winnings would require to deduct TDS at 30% if such winnings exceed Rs 10,000/-
Budget 2023 proposed a new provision to tax income earned from winnings from online gaming. This provision was introduced to tax such winnings from online gaming under section 194BA of the Income Tax Act, 1961 and was to come into effect from 1st July 2023. The Finance Bill (Lok Sabha) changes the date of applicability of Section 194BA to 01-04-2023 instead of 01-07-2023. Also, it amended that the TDS shall be deducted on the net earnings without the threshold limit of Rs 10,000/-
Introduction and Applicability of Section 194BA
As per section 194BA of the Income Tax Act, 1961, any person earning income from winnings from any online gaming, then the person who is responsible to pay such winnings shall be liable to deduct TDS from the net winnings of such person earning income. TDS shall be deducted on every single rupee earned after deduction of entry fees if any, which shall be considered as net winnings. Thus, the threshold of Rs 10,000/- shall not be applicable while deducting TDS.
Rate of TDS
As per section 194BA, TDS shall be deducted at the rate of 30% on the net winnings from any online gaming.
When to deduct TDS
TDS shall be deducted at the time when there is withdrawal of net winnings from the user account on such withdrawn amount. Where there is any unwithdrawn amount pending in the user account, TDS shall be deducted on the net winnings at the end of the financial year as prescribed.
Winnings in Kind
In case where a person earns any winning from online gaming in kind or partly in cash and partly in kind, then the person responsible for paying such winnings shall ensure that cash is sufficient to meets the TDS amount or ensure that the tax has been paid on such earnings before releasing such winnings to the person who earned the winnings.
Due Date to deposit TDS u/s 194BA
Where the TDS is deducted in any month other than the month of March, then such TDS shall be deposited to the government’s account by 7th of next proceeding month. In case where the TDS is deducted in the month of March, such TDS shall be deposited to the government’s account by 30th of April.
Filing of TDS Return
Any person responsible to deduct TDS on the winnings from online gaming under section 194BA, shall file the TDS return in Form 26Q in every quarter before the due dates as prescribed.
Eligibility of Deduction
Any person earning income from winnings from online gaming, such income shall not be eligible for any deduction under Chapter VI A. Such income shall also not be eligible for calculation of basic exemption limit to tax.
Reporting of Income
Any person who has earned income from winnings from online gaming shall report such income under the head ‘Income from Other Sources’ while filing an Income Tax Return.
Higher deduction of TDS for Non-Filers (Sec 206AB)
Section 206AB of the Income Tax Act shall not apply in the case of winnings from online games. Thus the payer of the winnings amount shall not deduct TDS at a higher rate where the person earning the winnings has not filed the ITR.
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