Govt: New TDS requirements for online games to enable ease of doing biz

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The central government on Monday informed the Lok Sabha that new income tax requirements for online games which came into force on April 1 offered certainty in taxation for online games which will enable ease of doing business and will help the industry in its growth.

The Minister for State in Ministry of Finance Pankaj Chaudhary was responding to queries raised by seven members on the implications of new tax requirements by seven members when he made the statement on behalf of the government.

Prior to the 2023 budget amendments, online gaming companies are required to deduct TDS on taxing winnings above the threshold of Rs 10,000 on a per game basis. Sections 194BA and 115BBJ of the Income Tax Act, 1961 removed the threshold and prescribed a rate of 30% to be levied on the net winnings.

Under the new requirements, if a player decides not to withdraw the winnings from the wallet, then the gaming company will have to TDS only for the amount withdrawn. While  not withdrawn amount will attract a TDS at the end of the financial year.

While the industry welcomed the much needed clarity on direct tax front, the indirect tax aspect i.e., GST still continues to be a contentious issue with no clarity for now. The GST Council is expected to meet in June 2023 and may discuss the issue at length.

At present, online skill games are subject to GST at 18% of gross gaming revenue (i.e., platform fee charged by operators) while betting and gambling is taxed at 28% on full amounts. Reports indicate that the Group of Ministers headed by Meghalaya Chief Minister was inclined in favour of 28% GST on full value but couldn’t arrive at consensus.

A higher rate of GST for skill games on par with gambling and betting according to industry may impede the growth of the online skill gaming sector.

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