Stricter TDS norms for online gaming income may be announced in Union Budget 2023-24

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Online gaming winnings may be subject to more stringent income tax scrutiny. According to reports, the Finance Ministry is evaluating the current income tax laws governing online gaming and may broaden their application so that players who win less than Rs 10,000 in such games may also be included in the tax deducted at source (TDS) bracket.

“There continue to be certain loopholes in the taxation of online gaming. It is being seen how these can be addressed so that the due amount is paid as tax,” according to a source. The proposal is anticipated to be included in the Union Budget for 2023–2024.

There are reportedly two problems at hand, according sources as quoted by Financial Express

1. TDS provisions presently apply to winnings of Rs 10,000 or more. To avoid TDS, some online gaming organizations, however, divide the prize money into two or more installments. To prevent tax avoidance, this level can be reduced even further.

2. In order to split the winnings and keep them within the Rs 10,000 cap, some online gaming companies offer coupons or vouchers in addition to the cash award. For the subsequent games, these certificates can be redeemed. The administration is looking into ways to include these things in the tax system.

Online gaming winnings are subject to a 30% tax under the current tax system. The payer or business must deduct taxes from payments that are more than Rs 10,000.

The person in charge of disbursing lottery or crossword puzzle winnings to any individual is required under section 194B of the Income Tax Act of 1961 to deduct income tax at the applicable rate. According to Section 115B of the Income Tax Act, 30% of the income from such cash rewards in online gaming is taxed. Such winnings are exempt from deduction or setoff.

“Further, the withholding provisions also does not specify the point at which such tax is required to be deducted. It mentions ‘paying to any person’ which is in itself not sufficient to decide when such withholding needs to be done, thus giving ample room for the gaming companies to define their own terms for such trigger point of tax withholding,” said Saurrav Sood, Practice Leader – International Tax & Transfer Pricing, SW India.

“The withholding tax provisions also mentions the term ‘winning’ which has not been defined under the IT Act,” he added.

Recently, during the inauguration of the Taxpayers Lounge at the India International Trade Fair (IITF), Central Board of Direct Taxes Chairman Nitin Gupta proposed the idea of tweaking the TDS provision for better audit trail.

The Central Board of Direct Taxes (CBDT) assumes an increase of 30% in revenue from projected tax collection on online gaming, but according to Gupta it can be further increased.