The Central Board of Direct Taxes (CBDT) has issued guidelines to address the concerns of stakeholders regarding the deduction of income tax on online game winnings under Section 194BA of the Income-tax Act, 1961. The said section was inserted vide the Finance Act, 2023, and is in operation w.e.f. April 1, 2023.
Considering that several gamers play with an insignificant amount and withdraw small amounts, it has been clarified that tax need not be deducted from net winnings if the amount withdrawn does not exceed Rs. 100 in a month.
Further, it is specified that any deposit in the form of a bonus, referral bonus, incentive, etc. by the online gaming intermediary into the user account would form part of net winnings and hence, tax is liable to be deducted at the time of withdrawal and at the end of the financial year under Section 194BA.
When one user has multiple wallets, the guidelines state that under Rule 133 of the Income-tax Rules, 1962, the user account would include every account of the user which is registered with the online gaming intermediary and where any taxable deposit, non-taxable deposit or winning of the user is credited and withdrawal by the user is debited.
The said rule was inserted by the Income-tax (Fifth Amendment) Rules, 2023 notified on May 22, 2023, and provides the following formula for calculating the net winnings from online games: – Net winnings = A-(B+C). Here, A refers to the amount withdrawn from the user account, B to the aggregate amount of non-taxable deposit made in the user account by the owner of such account during the financial year, till the time of such withdrawal and C is the opening balance of the user account at the beginning of the financial year.