The Central Board of Direct Taxes (CBDT) on Monday clarified that any deposit in the form of bonus or incentives credited in a user account will be considered net winnings, and subject to tax deduction, in case of withdrawal.
If these are used only for playing, then it’s not liable for tax deducted at source (TDS).
Further, in case net winnings do not exceed Rs 100 a month, the applicable tax need not be deducted.
This also extends to cases where the balance in the user account at the time of tax deduction is not sufficient to discharge the tax deduction.
The clarification comes as a part of guidelines clarifying TDS provisions on income by way of winnings from online games.
This is in line with the new TDS rule on online gaming, effective from April 1.
The new rule mandates a person, who is responsible for paying to any other person any income by way of winnings from any online game during the financial year, must deduct income tax on net winnings in the person's user account.
Tax is required to be deducted at the time of withdrawal as well as at the end of the financial year.
Clarifying on the treatment of bonus/incentive by online gaming intermediaries to the user, it said some deposits could be money equivalent like coins, coupons, vouchers.
And, in such cases, it will be considered a taxable deposit.
The apex body has clarified that the valuation would be based on fair-market value of the winnings in kind except in cases where the online game intermediary has purchased the winnings before providing it to the user.
In that case, the purchase price will be the value of winnings.
It further said that in case the user borrows the money and deposits it in his user account, it will be considered a non-taxable deposit.
With respect to computation of net winnings on multiple user accounts, the CBDT has clarified that “that user account shall include every account of the user, by whatever name called, which is registered with the online gaming intermediary and where any taxable deposit, non-taxable deposit or winnings of the user is credited and withdrawal by the user is debited.
"Thus, each wallet which qualifies as a user account shall be considered as a user account for the purposes of computing net winnings.
"The deposit, withdrawal or balance in the user account will mean aggregate of deposits, withdrawals or balances in all user accounts.”
“The circular has given relaxation where the deduction was not done due to pending clarification and can be deposited with the current month’s liability without any penal consequences,” said Sandeep Sehgal, partner, AKM Global, a tax firm.
CBDT further clarified that GST will not be included for the purposes of valuation of winnings for TDS under Section 194BA of the Act.
Till March 31, 2023, TDS on winnings made on online games was applicable if the winnings exceeded Rs 10,000 in a financial year.
The rate at which TDS on winnings from online games is deducted is at 30 per cent.
