CBDT streamlines rules for taxing online winnings

The Income Tax (Fifth Amendment) Rules, 2023, notified by the Direct Tax Authority, specifies a formula for computing net winnings from online games in a financial year which are liable to 30% income tax.

The new rule states that the net taxable winnings in a year will be the difference between the amount withdrawn from the user account and the closing balance and the non-taxable deposits made to the user account and the opening balance.

The rules also prescribe the formula for tax deduction at source (TDS) at various stages, such as first and subsequent withdrawals from the user account.

The new rules also define terms such as non-taxable deposits in user accounts, such as loan amounts deposited in it. The rules also define the tax liability of bonus, referral bonus and incentives etc.

On Monday, the CBDT issued a set of guidelines interpreting these terms to help both online gamers and gaming companies.

Accordingly, online gaming platforms are not required to deduct tax at source on winnings withdrawn by players if the amount is less than 100 a month and meets some riders.

The guidelines made it clear that the net win is below 100 in a month shall not be subject to Tax Deduction at Source (TDS) at the time of withdrawal, provided the tax liability is deducted when the net winnings exceed this limit in the same or subsequent month or at the end. financial year.

Also, to be eligible for this concession, the tax deductor has to undertake the responsibility of paying the difference, if the balance in the user account is not sufficient to meet the tax liability at the time of deduction, the CBDT explained in the guidelines. .

Experts said the new set of guidelines and rules bring more clarity in the tax regime and plug some loopholes, but it could lead to a decline in online gaming activities.