Now TDS on incentives and bonus offered in online gaming: CBDT

The Central Board of Direct Taxes (CBDT) on Monday clarified that any deposit in the form of bonus or incentives credited to an online gamer’s account will be considered net winnings, and subject to tax deduction, in case of withdrawal.

However, platforms need not deduct TDS in case net winnings do not exceed Rs 100 a month and meet certain riders including if these are used only for playing, then it’s not liable for tax deducted at source (TDS).

Some deposits could be money equivalents too like coins, coupons, vouchers, counters, etc. In such a situation the equivalence in money of such deposit shall be considered a taxable deposit and would accordingly form part of the balance in the user account, the circular further noted.

Tax must be deducted at the time of withdrawal and at the end of the financial year.

This comes after the budget announcement about removing the minimum threshold of Rs 10,000 for TDS (Tax Deducted at Source) and is in line with the Finance Act 2023 which inserted a new section 194BA in the Income-tax Act, 1961, with effect from April 1, 2023, which mandates online gaming platforms to deduct income tax on the net winnings in the person's user account.

"To start with it will tighten to adapt to the required calculations and educating users about their personalised calculations based on their winning amounts will require a significant amount of time and effort," said Mitesh Gangar, Co-founder and Director of PlayerzPot, a fantasy gaming platform. "However, this process is crucial for ensuring transparency and shall bring ease within the industry. By making such announcements and implementing these measures, the online operators are actively working towards building trust among all stakeholders and finally gaining the long-overdue recognition we deserve,” he added.

While the new rules give a viable solution to manage many gamers who play with very small amounts and also withdraw very insignificant amounts, experts suggest this could make TDS a huge compliance burden for the online gaming company.

"This development holds significant importance for the sector, particularly in terms of its implications for individual gamers. However, it also brings to the forefront a critical concern regarding the taxation of net wins across multiple gaming platforms,” said Pranav Bagai, Chief Executive Officer and Founder, Poker Sports League. “It raises a pressing question: how will these wins and losses be appropriately accounted for across different platforms for taxation purposes? Will the gamer be required to fulfill the full TDS obligation for sites of winning, and subsequently disclose loss on other sites to potentially seek a tax refund? While we eagerly await further clarity on this matter, it's becoming increasingly evident that a thorough exploration of the intricate aspects of this process is essential,” he explained.

“For operators, while it leads to increased burden of compliance, the expectation is that collections will draw interest of the government to craft favorable policies to drive growth,” argued Yash Srivastava, Managing Director (APAC) of the gaming platform - Coda Payments.