2022 set the ball rolling for regulatory shifts in the real money gaming sector. While the government formed a few committees to overhaul the policy framework for skill gaming in 2022, the resultant outcomes could only be seen in 2023.
1. New IT Rules for Real Money Gaming
Towards the end of 2022, the Ministry of Electronics and Information Technology (MeitY) was designated as the nodal ministry for online real-money gaming. Soon the ministry got into action by releasing the draft rules for real money gaming under the Information Technology Act, 2000 (IT Act) in the first week of January 2023.
After a few rounds of public consultations, the new rules were notified in April 2023. However, the rules are yet to be fully implemented with self-regulatory organisations (SROs) yet to be approved. Reports suggest that the government is revisiting the idea of SRO setup.
2. TDS on winnings from online skill games
The Finance Act, 2023 overhauled the direct tax regime on income arising from online games. The new provisions implemented a distinction between the taxation of online and offline games. A new provision as section 115BBJ was introduced in the Income-tax Act, 1961 (“ITA”) to provide for 30% tax on net winnings from ‘online games’.
‘Online game’ was widely defined to mean a game that is offered on the internet and is accessible by a user through a computer resource, including any telecommunication device and therefore is made applicable to games of skill or games of chance.
Online gaming companies are required to withhold tax at TDS as 30% of winnings at the end of the financial year or at the time of withdrawal. The TDS obligation is applicable even in cases where the players do not make any deposit to participate in the game. These provisions were effective from April 1, 2023. The tax department collected nearly rupees six hundred crores as TDS in the first six months of this financial year on account of the new provisions.
3. New GST regime for money gaming
The 50th GST Council in July 2023 recommended that the actionable claims supplied in online gaming, and horse racing be taxed at the rate of 28% on full face value, irrespective of whether the activities are game of skill or game of chance.
Subsequently, post stakeholder consultations, the 51st GST Council in August 2023 further announced certain critical recommendations including amendments to GST laws in the country and specific amendments for the valuation of the supply of online gaming and actionable claims in casinos were proposed in the CGST Rules, 2017.
The recommendations were swiftly implemented with amendments to the CGST Act, 2017 passed by the Parliament and receiving the assent of the President on 31 August 2023. The Central Government implemented the changes with effect from 1 October 2023. These tax changes are expected to be reviewed in 2024.
4. Government acts on illegal betting websites
The government also brought illegal offshore betting websites within the tax regime and mandated all offshore betting websites to register under GST laws. The requirement to register made the officials of illegal offshore gambling portals subject to proceedings under tax laws and also the possible law enforcement investigations. As a result, several offshore gaming companies announced exiting the Indian market. Further, at the request of the Enforcement Directorate, MeitY blocked a few more betting portals in November 2023.
5. Digital Personal Data Protection law sees light but Digital India law postponed
The Parliament in August 2023 finally approved the Digital Personal Data Protection Bill, 2023 which soon became an Act with the presidential assent. The government is working on the rules and the law is expected to be implemented in 2024.
Another important announcement came in March 2023 that the two-decade-old Information Technology Act of 2000 (IT Act) will be replaced with a new Digital India Act (DIA), a future-ready legislation. The work on the Digital India Act is expected to accelerate after the general elections in the first half of 2024.