online gaming: Govt introduces two new sections in I-T Act to tax user income from online gaming

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Experts believe that the move will help the online gaming industry to build a distinct identity for itself without getting clubbed with betting.

In a major breather for the online gaming industry, the government has introduced two new sections and amended one section in the Income Tax Act to separate online gaming platforms from betting and gambling activities.

Experts believe that the move will help the online gaming industry to build a distinct identity for itself without getting clubbed with betting.

The government has introduced Sections 194BA and 115BBJ to tax income that users earn by winning on gaming platforms. Section 194BA deals with tax deduction at source (TDS) while Section 115BBJ prescribes the tax rate on the winnings from online games. Both sections will take effect from 1st July 2023.

In the Finance Bill, the government said that Section 194BA is being introduced to tax a user’s net winnings from online games at the end of the financial year.

To tax winnings from online games, the government has introduced a new Section 115BBJ. As per this section, the amount of income tax calculated on net winnings from online games during the previous year will be charged at the rate of 30%.

Deloitte India Partner and Media and Entertainment sector leader Jehil Thakkar said that the introduction of Section 194BA means that the TDS on winnings will now be deducted even below Rs 10,000.

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“Earlier Rs 10,000 was the limit. Also, now net winnings are taxed i.e., the amount you initially bet is allowed as an expense,” he added.

While welcoming the introduction of Section 194BA, All India Gaming Federation (AIGF) CEO Roland Landers said, “While we await CBDT’s clarifications and guidelines in this regard, we are hopeful that the certainty in taxation offered by the budget announcement will be a huge stimulus for the growth of the online gaming industry.”

Games24x7 CFO Rahul Tewari said the removal of the minimum threshold of Rs 10,000 for TDS deduction is a progressive step as the government is creating a new section for the online gaming industry.

“It cements the recognition of online gaming as a distinct technology-driven entertainment sector. As mentioned, we will await to get more clarity from the department on the computation mechanism,” he noted.

The government has also amended Section 115BB of the Income Tax Act to exclude income earned by way of winnings from online games from lotteries, betting, and gambling for the assessment year beginning on or after the 1st day of April 2024.

Section 115BB, which relates to tax on winnings from lotteries, crossword puzzles, races including horse races, card games, and other games of any sort or gambling or betting, earlier applied to winnings from online gaming also.