To ensure the establishment of a better audit trail regarding the money spent and gained from such activities and to check for possible evasion, the government is now planning to tighten the Tax Deduction at Source (TDS) framework for the online gaming sector.

During the inauguration of the Taxpayers Lounge at the India International Trade Fair (IITF), chairman Nitin Gupta proposed the idea, saying, “TDS provision needs a tweak for better audit trail.”

This is a very important decision regarding proper tax collection from online gaming service providers. Several online gaming companies have been under the radar regarding tax evasion in the past few months.

Many of them are offshore companies that are using surrogate adverts to draw traffic to them and avoid paying taxes. Using an illegal gaming app that is not authorized for online gaming is also a common practice for tax evaders.

The Inter-Ministerial panel has also suggested a central law to control online gaming. The current Public Gambling Act of 1867 has many loopholes, and companies are taking advantage of the gray area regarding online gaming.

The Central Board of Direct Taxes (CBDT) is assuming an increase of about 30% from projected tax collection on online gaming, but Gupta believes that it can further increase if they properly control the tax evasion issue.

Gupta said, “Online gaming and betting is a new kid on the block and will take a view at the budget preparation stage and see how evasion can be controlled while at the same time making it easy for taxpayers to maintain accounts and pay taxes.”

There has been a spree of crackdowns on companies and individuals trying to evade tax recently by the government. A major investigation regarding offshore gaming companies using surrogate brands for tax evasion is also planned by CBDT.