TDS Changes on Winnings From Online Gaming to Come Into Effect From April 1, 2023

The Budget 2023 introduced a few changes to the Income Tax Act that would impact how TDS is deducted from online winnings. The proposed changes were expected to be implemented from July 1, 2023. However, according to recent news reports, the changes will be applicable from the start of the new financial year, i.e., April 1, 2023.

Players filing taxes for the financial year 2022-23 will not be subjected to these changes but will need to be mindful of them for the incoming financial year of 2023-24.

Changes Introduced in Budget 2023

The Indian government introduced two new sections to the Income Tax Act to distinguish winnings from online gaming (including poker, rummy, and fantasy sports) from other betting and gambling activities.

Finance Minister Nirmala Sitharaman also announced the removal of the minimum threshold of ₹10,000 on TDS from online winnings and the mandatory tax deduction of winnings in player accounts at the end of the financial year.

The Finance Bill 2023 added two new sections, Section 115BBJ and Section 194BA, dedicated to dealing with winnings from online gaming. Section 115BBJ taxes winnings from online games from the Financial Year 2023–24 onwards, making tax applicable on ‘net winnings’ at 30%. Winning from online games like poker, which fell under Section 194B, will now be classified under a new Section 194BA, which makes it mandatory for TDS to be deducted at the rates in force (i.e., 30%) TDS on ‘net winnings’ from April 1, 2023, when the user withdraws net winnings from his/her account and at the end of the financial year on any pending winnings in player accounts.

Industry Reactions to the Changes

Adding two new sections to the Income Tax Act to distinguish winnings from online gaming from other betting and gambling activities was a positive step towards recognizing the sector’s potential. However, removing the TDS threshold will negatively affect low-to-mid-stakes players, who must pay 30% of their net winnings even if they are below ₹10,000.

Regulatory bodies like the E-Gaming Federation, All India Gaming Federation, and Federation of Indian Fantasy Sports requested the removal of online skill gaming from gambling, horse racing, and casinos from the TDS gambit. Several gaming companies also raised concerns over the increased compliance costs due to the new TDS mechanism, which may make it difficult for them to survive in the industry. Some industry experts say the increased tax rate will also affect players and platforms.

GST on Online Gaming Remains to be Finalized

The Indian government is currently grappling with the issue of indirect taxation for real money online games, mainly whether they should be considered games of skill or chance and how they should be valued. Currently, online skill games are taxed at 18% of gross gaming revenue, while gambling and betting are taxed 28%.

The Group of Ministers (GoM) on online gaming, casinos, and horse racing submitted a report to the GST Council in December but failed to reach a consensus. The GoM is expected to convene again in June, and the matter may be taken up at the 50th GST Council meeting.

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