Budget 2023 : Win big with Online Gaming, Pay big with new Tax Provision

Section 194B of the Income-tax Act, requires that the person responsible for paying any income in the form of winnings from lottery, crossword puzzles, card games or any other game to deduct TDS if the amount exceeds 10,000 rupees.

Section 194BB of the Act has similar provisions for horse racing. And, Section 115BB of the Act specifies the tax rate on winnings from such games or betting.

However, some deductors are avoiding tax deduction by splitting winnings into transactions under 10,000 rupees.

With the rise of online games, Income Tax Department has felt a need for specific provisions for tax deduction at source and taxability of online games.

Thus, Section 115BBJ (Clause 54) is proposed to be added to address tax on winnings from online games.

The tax payable will be aggregate of :

• The income tax calculated on the net winnings from online games (computed as prescribed) at a rate of 30% (plus applicable surcharge and cess).
• The income tax that would have been payable if the net winnings were excluded from the total income of the taxpayer.

In line with the proposal to this section it has been proposed to amend section 115BB of the Act (Clause 53) to exclude income from winnings from any online games from section 115BB.

Here, an "Online Game" refers to a game that is available on the internet and can be played by a user via a computer resource or telecommunication device.

The proposed amendment to section 115BB and the new section 115BBJ will become effective on April 1, 2024 and will apply to the A.Y. 2024-25 and all subsequent years.

Also, the Finance Bill, 2023 proposes to introduce section 194BA (Clause 83). Starting from July 1st, 2023, this section will mandate the deduction of TDS (30%) on net winnings from any online game in user accounts at the end of the financial year. In case of any withdrawal during the financial year, TDS shall be deducted on the spot.

Additionally, the net winnings shall be calculated as per the prescribed method, with tax deducted on the remaining amount at the end of the financial year. The proposed section 194BA will also ensure that in cases where the net winnings are in kind or partly in cash, the person responsible for paying shall ensure that the tax has been paid before releasing the winnings.

Additionally, the bill proposes to:

(i) Amend sections 194B (Clause 82) and 194BB (Clause 84) of the Income-tax Act so that tax deductions under these sections will be applied  to amounts over Rs. 10,000 during the financial year to avoid splitting winnings into transactions under 10,000 rupees.

(ii) Exclude online games from the scope of section 194B (Clause 82) of the Act as from July 1, 2023, as a new section 194BA is proposed to be introduced on that date.

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