I-T Department Issues New Taxing Guidelines for Online Gaming The Central Board of Direct Taxes issued circular 'Guidelines for removal of difficulties under sub-section (3) of section 194BA of the Income-tax Act, 1961' shared that anyone who is responsible for paying any income by means of winnings through online games is required to deduct income tax on the net income from the user's account

On Monday, the Income Tax Department issued fresh guidelines for the removal of difficulties when dealing with winnings from online games.

The Central Board of Direct Taxes issued circular 'Guidelines for removal of difficulties under sub-section (3) of section 194BA of the Income-tax Act, 1961' and shared that anyone who is responsible for paying any income by means of winnings through online games is required to deduct income tax on the net income from the user's account.

Additionally, the tax will be deducted at the time of withdrawal and at the end of the financial year.

One user, multiple wallets

CBDT states that there will be one main account which will have every account of the user under it, and it will be registered with an online gaming intermediary. The account can be any account where any taxable, non-taxable deposits or winnings are credited, or withdrawals are debited. According to the circular, "each user account shall be considered for the purposes of calculating net winnings."

The net winnings for calculating tax under section 194BA shall be done as Net winnings =A-(B+C), where A is the amount withdrawn from the user account, B is the aggregate amount of non-taxable deposit made in the user account by the owner of such account during the financial year, till the time of such withdrawal, and C is Opening balance of the user account at the beginning of the financial year.

It is further clarified that the transfer of funds from a user's one account to another on the same platform will not be considered a withdrawal or deposit.

Bonus to be treated as taxable deposits

It will also have bonuses, referral bonuses, incentives etc., that are given by the online game intermediary to the user be treated as taxable deposits. With this, the taxable balance in a user's account will increase, and the bonus cannot be deducted while calculating net winnings.

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

Some incentives/bonuses which cannot be withdrawn will not be calculated for net winnings.

Small ticket size to be treated as a non-taxable

CBDT offers relaxation to players who play with small ticket sizes and withdraw small amounts. This relaxation will only be applicable if net winnings withdrawn do not exceed INR 100 per month. If the monthly winnings exceed INR 100, or if there is no such withdrawal at the end of the financial year, the tax will be deducted.

Deductor (the online gaming platform) will be held liable to pay the difference in balance if the user account at the time of tax deduction does not have sufficient balance to deduct tax calculated in accordance with Rule 133.

Net winnings in kind

When money from a user's account is used to buy an item in kind, and then that item is given to another user, then it will be considered as net winnings in cash only. In a situation like this, the deductor will be required to deduct tax at source.

"The circular provides guidance in the computation of the winning amount on which withholding tax will apply. The confusion that existed on how the provisions will be put into implementation stands covered through this circular. Now with this, the onus shifts back to gaming to put their mechanism in place for ensuring taxes are deducted at the point of withdrawal. Since this circular has come after a gap from the date of implementation of new rules, the shortfall if any for the past month can be paid now and there shall not attract any penalty," shares Saurrav Sood, Practice Leader, International Tax & Transfer Pricing, Sw India on the new guidelines.