As per the new rules laid w.e.f 1st April 2023, TDS is supposed to be deducted on each rupee earned while playing online games. The 30 % of TDS would be deducted in case of winning the online gaming, which is seemingly the highest among all where TDS gets deducted from the sources of income
Do gamers have to pay taxes?
Yes, in India as per Section 115BB under the income tax Act, gamers are liable to pay tax on online games winnings of them. The concept of paying taxes by these gamers is straightforward, but despite these regulations, some fail to pay the tax.
Taxation rules for online games in India
Separating online gaming from gambling, under section 194BA of Finance Bill, 2023, at present, firms that are involved in online gaming are required to deduct a 30% charge on any winning withdrawn by users on an amount equal to or exceeding ₹10,000 in each transaction as TDS. While from 1 April 2023, the ₹10,000 thresholds will remain, and it will appeal to a user’s yearly earnings. If simply put, between 1 April and 30 June any online gaming winnings will attract 30% TDS. This rule will change from 1 July, any transaction on an online gaming platform will incur TDS as there will be no threshold for the application of TDS as such.
Online gaming has the probable prospective to establish as the next big new age export economy for India, but this sector will be prematurely stifled by imposing 28% GST. There are several premature stage companies in this sector. However, rising tax rates for this field will take away companies’ ability to survive in the market where competition is immense.
Applicable taxes on online gaming in India
In India, depending on the nature of the gaming activity online gaming is subject to various tax laws. Few of the taxes levied to online gaming in India involves:
Goods and Services Tax (GST): For the supply of goods and services in India the tax levied is GST. GST on Online Gaming platforms is subject to as they are considered to be providing services.
Income Tax: On the profits earned from the gaming operations in India online gaming operators are required to pay income tax.
Withholding Tax: Online gaming operators are subject to withholding tax on any income earned from Indian users if they are based outside of India.
It is necessary to copy that the taxation rules for online gaming in India are continuously evolving, and for specific guidance on this matterit is advisable to seek the advice of a tax expert.
How is Online Gaming Taxed Under Income Tax Act?
Online games that offer real-money are experiencing real-time extension in the recent past like poker, online rummy, etc. In the past 10 years the online gaming Industry has seen a massive growth pace with people obtaining smartphones and personal computers that provide the liberty and the ability to live this new virtual world full of chance. This development of the gaming industry in India has allured big investments in companies providing these gaming services. Companies find it to be the place for huge Earnings while gamers play rummy, sports games, poker, quizzes, etc. for the sake of thrilling sensation. A whole new area of earning money from the comfort of one’s home has been provided to the players who are interested. A lot of people are considering the option to become professional gamers today. It is obvious that tax is also involved since money earning is involved in this scenario.
Income Tax on Online Gaming In India,
One can earn money playing online poker, rummy, etc. By declaring the game as legal in India the Supreme Court of India has allowed playing rummy. However, the earning of money one gets from online games are concerned to income tax. The card games and other games of any sort will include a game show and an entertainment programme on electronic mode or television where participants compete to win prizes and other similar games and it was clarified by the Finance Act 2001. As per Section 115BB of the Income Tax Act this Income is considered as ‘income from other sources’.
The income is subject to taxes at a Flat rate of 30% including a cess of 4% which results in to tax rate of 31.2% when you are filing your Income Tax Returns.
Keep in mind that this is done without taking into account the basic immunity limit. The income that will be subject to tax under this section includes the relevant sources:
- Online Card Games
- Games Show on TV or Online
- Crossword Puzzle
- Gambling or Betting
- Horse Races
Example of Online Game Tax
When filing income tax online game tax is important to be taken into consideration. Check out the example beneath: For case, Rajesh earnsRs. 30,000 from online gaming and he also earns Rs. 2 lakhs as annual income. His earnings are beneath the basic exemption limit. i.e. 2.5 lakhs. But Rajesh will still have to pay tax on Rs. 30,000 that will be 31.2% including cess.No deduction of any spending will be allowed to be exempted to any such income after that.
Note that the deduction in TDS if the prize money exceeds Rs. 10,000 will be made by the entity distributing the prize money. Under section 194B of the Income Tax Act this deduction will be 31.2%. Remember that the beneficiary is required to show this amount when filing the annual Income Tax Return. TDS on online games needs more awareness from the government.
For example, as the prize in online gaming, Sunita has won a camera worth Rs. 1,20,000. When handing over the prize to the winner the distributor of the prize has to pay the 31.2% tax applied to the camera. The tax amount can either be paid from the distributor himself or be acquired from the winner.
Keep in mind that the total tax should be calculated on the amount of cash and Market value of the item given as prize if the prize is given in the form of cash or a physical item.
The deduction of tax amount should be made while giving the required cash section of the prize to the winner. However, if the cash prize is not enough to cover the total Tax Liability, then either the winner or the distributor of the prize will be responsible to pay the amount that is still required.
Amid the Coronavirus pandemic online gaming in India is the place that has helped many players earn money from the consolation of their homes. In the years to come, one can only expect exponential growth in this field. And possibly, this could be a new employment opportunity and career path for individuals.