Tax department issues guidelines for calculation of TDS for online gaming

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The Income Tax Department on Monday issued new guidelines (Circular No. 5 dt 22.5.2023) clarifying the manner of calculation of TDS on net winnings from online gaming which came into effect earlier this financial year.

According to the guidelines issued, anyone who is responsible for paying to anyone else any income by way of winnings from any online game during the financial year must deduct income tax on the net winnings from the person’s user account.

On the issue of multiple wallets under one user, the guidelines said the main account must include every account of the user and will be registered with an online gaming intermediary. This wallet is where any taxable deposit, non-taxable deposit or the winning of the user is credited, and withdrawal by the user is debited.

However, one deductor with multiple platforms can at its option calculate the tax required to be deducted for each platform separately. “However, if the one deductor (one TAN) is having multiple platforms and it is not technologically feasible for him to integrate multiple user accounts across platforms then he may, at his option, calculate tax required to be deducted for the purposes of section 194BA of the Act for each platform separately. ”

Further, the guidelines clarified that self-transfer between a user’s multiple accounts on the same platform shall not be considered a withdrawal or deposit. However, the department said that if the deductor is deducting tax for each platform separately, transfer from one user account to another user account under same online gaming intermediary across platforms shall be considered as withdrawal or deposit for the purposes of calculation of net winnings.

The department clarified that where an user deposits borrowed money into a wallet, such amount is not subject to TDS.

The guidelines said that any deposit in the form of a bonus, referral bonus, incentives, etc, would form part of net winnings and is liable for tax to be deducted at the time of withdrawal as well as at the end of the financial year. Where deposit is in form vouchers, coupons, etc., the equivalence in money is to be considered.

The department clarified that no tax can be deducted if the net winnings withdrawn do not exceed Rs 100 per month. However, the tax will be deducted when the net winnings from withdrawal exceed Rs 100 in the same month or a subsequent month, or if there is no such withdrawal, at the end of the financial year.

The guidelines clarified that GST is to be excluded for the purpose of calculation of net winnings. Considering there is a time lag between the law coming into force (1 April) and the circular, the department said any shortfall for April 2023 can be remitted with May 2023 remittance.

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