Impact of Tax on Online Gaming in India

Topic Covers:

1. Introduction
2. Section 115BBJ- Charging Section
3. Calculation of Net Winnings

Introduction

Online gaming is now a popular industry in India. Online gaming offers a chance to win real money with fun. Income Tax Act, introduces taxation on winnings from online gaming through the Finance Act 2023. This provision became applicable from the 1^st of April 2023.

Further, CBDT has also clarified the TDS rules by issuing issued a circular for online gaming winnings.

Section 115BBJ – Charging Section

Online games like rummy Dream 11, and others offer the winner real money. However, the earnings are taxable and this income should be disclosed under the “Income from other sources” head. The rate of tax is provided under sections 115BBJ and rate to deduct the TDS is provided under section 194BA. Winners must pay a flat tax of 30% on this income, regardless of how much they earn.

Joining and referral bonuses:

Online games that offer bonuses, referral bonuses, and other incentives to the players are not considered prize winnings and are treated as taxable deposits and are included in the net winnings of the user account.

The net winnings are calculated as the total withdrawal minus the total fresh deposits and the opening balance. The net winnings are liable to tax at the rate of 30% under section 115BBJ of the Act. The person paying the net winnings is required to deduct TDS under section 194BA of the Act at the end of the financial year or when the amount is withdrawn, whichever is earlier.

Calculation of Net Winnings:

Net winnings = Total withdrawal - Total fresh deposits + opening balance.

Calculation of Net winnings

Illustration:

S.No.	Particular	Date	Amount
	Opening Balance	01.04.2023	₹ 10,00,000
	Amount Deposited	05.05.2023	₹ 15,00,000
	Amount Deposited by way of bonus (not withdraw able) in user account	12.12.2023	₹ 15,000
	First Amount withdrawn	01.02.2024	₹ 25,00,000
	Amount Deposited	10.02.2024	₹ 10,00,000
	Amount Deposited	11.02.2024	₹ 6,00,000
	Subsequent withdrawals On	15.02.2024	₹ 25,00,000
		15.03.2024	₹ 30,00,000
	Closing Balance	31.03.2024	₹ 14,00,000

Solution: Net Winnings for FY 2023-24

Withdrawals	01.02.2024	₹ 25,00,000
	15.02.2024	₹ 25,00,000
	15.03.2024	₹ 30,00,000
Total Withdrawal (A)		₹ 80,00,000
Deposits	05.05.2023	₹ 15,00,000
	12.12.2023	₹ 15,000
	10.02.2024	₹ 10,00,000
	11.02.2024	₹ 6,00,000
Total Deposits (B)		₹ 31,15,000
Net Winnings		₹ 52,85,000

Scenario 1: At the time of first withdrawal during the FY

At the time of first withdrawal

Net winnings = A-(B+C), where –

A : Amount withdrawn from the user account

B : Aggregate amount of non-taxable deposit made in the user account by the owner of such account during the FY, till the time of such withdrawal

C : Opening balance of the user account at the beginning of the FY

Withdrawals	01.02.2024	₹ 25,00,000
Total Withdrawal (A)		₹ 25,00,000
Deposits	05.05.2023	₹ 15,00,000
	12.12.2023	₹ 15,000
Total Deposits (B)		₹ 15,15,000
Opening Balance		₹ 10,00,000
Net Winnings		(15,000)

Scenario 2: At the time of subsequent withdrawal during the FY TDS at the time of subsequent withdrawal on 15.02.2024

At the time of each subsequent withdrawal

Net winnings = A-(B+C+E), where –

A : Aggregate amount withdrawn from the user account during FY till the time of subsequent withdrawal including the amount of such subsequent withdrawal

B : Aggregate amount of non-taxable deposit made in the user account by the owner of such account during the FY, till the time of such subsequent withdrawal

C : Opening balance of the user account at the beginning of the FY

E : Net winnings comprised in the earlier withdrawals, if tax has been deducted under section 194BA on such winning

Withdrawals	01.02.2024	₹ 25,00,000
	15.02.2024	₹ 25,00,000
Total Withdrawal (A)		₹ 50,00,000
Deposits	05.05.2023	₹ 15,00,000
	12.12.2023	₹ 15,000
	10.02.2024	₹ 10,00,000
	11.02.2024	₹ 6,00,000
Total Deposits (B)		₹ 31,15,000
Opening Balance (C )	01.04.2023	₹ 10,00,000
Net Winnings		₹ 8,85,000

TDS at the time of subsequent withdrawal on 15.03.2024

Withdrawals	01.02.2024	₹ 25,00,000
	15.02.2024	₹ 25,00,000
	15.03.2024	₹ 30,00,000
Total Withdrawal (A)		₹ 80,00,000
Deposits	05.05.2023	₹ 15,00,000
	12.12.2023	₹ 15,000
	10.02.2024	₹ 10,00,000
	11.02.2024	₹ 6,00,000
Total Deposits (B)		₹ 31,15,000
Opening Balance (C )	01.04.2023	₹ 10,00,000
Net Winnings(D)		₹ 8,85,000
Amount to deduct TDS A-(B+C+D)		₹ 30,00,000

Scenario 3: At the end of FY TDS at the closing i.e., on 31.03.2024

At the end of the FY

Net winnings = (A+D)-(B+C+E), where –

A : Aggregate amount withdrawn from the user account during the FY

B : Aggregate amount of non-taxable deposit made in the user account by the owner of such account during the FY

C : Opening balance of the user account in the beginning of the FY

D : Closing balance of the user account at the end of the FY

E : Net winnings comprised in the earlier withdrawals, if tax has been deducted under section 194BA on such winning

Withdrawals	01.02.2024	₹ 25,00,000
	15.02.2024	₹ 25,00,000
	15.03.2024	₹ 30,00,000
Total Withdrawal (A)		₹ 80,00,000
Deposits	05.05.2023	₹ 15,00,000
	12.12.2023	₹ 15,000
	10.02.2024	₹ 10,00,000
	11.02.2024	₹ 6,00,000
Total Deposits (B)		₹ 31,15,000
Opening Balance (C )	01.04.2023	₹ 10,00,000
Closing Balance		₹ 14,00,000
Winnings		₹ 8,85,000 ₹ 30,00,000
A+D- (B+C+E)		₹ 14,00,000

Note: We would suggest you to read circular no. 5 of 2023, dated 22nd May 2023 and Rule 133 of Income Tax Rules 1962.

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