Online gaming industry approaches CBDT and PMO on new tax rules

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The Central Board of Direct Taxes (CBDT) and the Prime Minister’s Office (PMO) have been approached by the online game industry opposing any changes to the sector’s tax deduction at source (TDS) and Goods and Service Tax (GST) laws.

Any profits customers withdraw over Rs 10,000 must be subject to a 30% TDS fee by online gaming companies. Starting July 1, there will be no threshold for TDS application; any transaction on an online gambling platform would be subject to TDS.

E-Gaming Federation (EGF), All India Gaming Federation (AIGF) and Federation of Indian Fantasy Sports (FIFS) sent a letter to the PMO on February 9 asking to remove online gaming from gambling, horse racing, and casinos. Online gaming industry bodies also wrote a letter to CBDT to reconsider the changes in TDS following the letter to PMO.

According to a report from Mint, the industry bodies claimed in a letter to the CBDT that the new TDS regime would significantly raise the cost of compliance and make it more difficult for small businesses to operate in the industry.

Co-founder of WinZO, Saumya Singh Rathore said, “Online gaming holds the promise of being a major export economy for India, but imposing 28% GST suggests that the government is looking to stifle this sector. It also affects creators, whose earnings will be stifled as platforms will have to increase the tax rates while keeping games and products affordable to the end customer.”

The letter on February 9 was regarding the taxation on online gaming. The gaming industry urged not to put online gaming in the gambling category. Although the Group of Ministers (GoM) submitted the report to GST Council, the issue was not discussed at the Council’s 49th. Currently, the tax rate for online gaming is set at 18% on gross revenue.

CEO of AIGF, Roland Landers, said, “The overall step to segregate online gaming from gambling, under section 194BA of Finance Bill, 2023, is a positive one for the industry. However, increasing the TDS liability for every transaction can be a major hurdle since every transaction will require a TDS mechanism now. Companies must also implement two different TDS mechanisms quickly, and many are likely to fail to comply with the rules.”

Executive partner at law firm Lakshmikumaran & Sridharan, S. Vasudevan said, “The move is likely a way for the government to enforce a streamlined taxation process since previously, there was no way to determine if a person was evading taxes by using the threshold as a way to hide withdrawals unless they would voluntarily disclose these earnings. Theoretically, the TDS regime does not increase any tax burden for companies. However, it could act as a deterrent for many casual players if they were to have a sizable tax being implemented on every small-ticket casual title they would play.”