Besides amending the tax treatment of debt mutual funds and relief to small taxpayers with income of over Rs 7 lakh, the Budget 2023 also made changes to the Tax Deducted Source (TDS) threshold applicable to online gaming with effect from July 1, 2023, for the fiscal year 2023-24.
The government has now changed the date of applicability to April 1, 2023 in the Finance Bill released on Friday. An anomaly had earlier arisen due to amendments to section 194B under which online gaming is currently covered from April 1, 2023 and a separate provision on online gaming section 194BA is to come into force from July 1, 2023.
Shashi Mathews, partner of Law Firm IndusLaw, says, “Taking note of the representations made by the gaming industry, the government proposed to bring the latest TDS provisions, applicable to online gaming, into effect from April 1, 2023. Further, the TDS on the online gaming was also proposed to be deducted at the double rate, in case of non-compliance in return filing by the concerned deductee, where the TDS amount in the past year was more than 50,000.”
“This may require the gaming operators to seek an undertaking and necessary proofs from the users, to ensure proper compliance with this provision," Mathews added.
Prior to March 31, 2023, TDS was applicable to winning amounts made on online games if they exceeded Rs 10,000. Budget 2023 removed this threshold. Now, TDS will be deducted from all winnings from online games beginning April 1, 2023, minus entry fees. Online game winnings are subject to TDS at a rate of 30 per cent.
Here is an example to help you better understand this. Let us assume that an individual paid a free entry fee of Rs 1,000 and won a prize of Rs 50,000. The online gaming company would then deduct TDS at the rate of 30 per cent on (50,000 minus 1,000) Rs 49,000 and deposit to the government. The rest of the amount will be paid to the winner.
Reportedly, online gaming is a rapidly growing industry that will increase at a CAGR of around 27 per cent over the next five years in India. As a result, this industry holds tremendous potential to boost India's GDP and is expected to generate more than 1 million jobs by 2030. According to a Primus Partners report on online gaming in India, the GGR (Gross Gaming Revenue) tax model enabled the industry to prosper in countries where it has developed.
