Section 194BA: TDS on Winning from Online Games

Introduction and Applicability of Sec 194BA

As per section 194BA, any person earning income from winnings from any online gaming, then the person who is responsible to pay such winnings shall be liable to deduct TDS from the net winnings of such person earning income.

Threshold Limit

TDS shall be deducted on every single rupee earned after deduction of entry fee if any, which shall be considered as net winnings. Thus, the threshold of Rs. 10,000/- shall not be applicable while deducting TDS.

Rate of TDS

TDS shall be deducted at the rate of 30% on the net winnings from any online gaming. eg. Dream 11, My11circle, Lotus 365, etc.,

Section 194BA: TDS on Winning from Online games – CBDT Clarifies

Circular No. 5 of 2023, issued by the Central Board of Direct Taxes (CBDT), provides guidelines for the implementation of section 194BA of Income tax Act, 1961.

The circular clarifies various aspects, including the computation of net winnings, treatment of multiple user accounts, taxation of deposits, treatment of bonuses and incentives, withdrawal criteria, relaxation for insignificant withdrawals, taxation of winnings in kind, valuation of winnings, and penal consequences.

Circular No. 5 of 2023 dated 22nd May 2023, provides the following clarifications on the applicability of Sec 194BA w.e.f 01st of April 2023

  1. What if in case of multiple wallets held by a user?

Each wallet shall be considered as user account. Deposit in any of these user accounts would be considered as deposit (non-taxable or taxable as per the definition in Rule 133) and withdrawal from any user accounts would be considered as withdrawal.

2. Formula to compute Net winnings

Net winnings = A – (B+C)

A = Amount withdrawn.

B = Aggregate of the amount of Non-taxable deposit made by user during FY, till the time of withdrawal.

C = Opening balance at the beginning of FY.

3. Taxable and Non – Taxable Deposit

Taxable deposit – Bonus, referral bonus, incentives, etc., shall be considered as a taxable deposit. Also, money equivalents like coins, coupons, vouchers, counters, etc., provided by gaming companies shall be considered as taxable deposit.

Non-taxable deposit – the amount deposited by the user is not taxable i.e., it is from already taxed income or it is not chargeable to tax.

4. Anchor having multiple platforms under a single TAN

To overcome technical difficulties, the user can compute the net winnings and make TDS for each platform separately, at his option.

5. Transfer from one wallet to another wallet of the same anchor

If the anchor is computing the net winnings and making TDS for each platform separately (as mentioned in point 4) then each transfer from one user account to another user account shall be considered as a withdrawal or deposit.

6. Transfer from one wallet to another wallet of a different anchor

Any transfer from user account of the anchor to any other user account not registered with the anchor shall be considered as withdrawal.

7. Treatment of non-withdrawable incentives or bonus

Such deposits will be ignored for the calculation of net winnings. Thus, such deposits shall not form part of the opening or closing balance and anchor must keep separate accounts of such deposits. Upon re-characterisation of such incentives or bonus from non-withdrawable to withdrawable then they shall be treated as taxable deposits at the time of recharacterization and they will become part of Net winning.

8. Withdrawal in kind – Anchor providing coupons or voucher to purchase any goods/services

Any issuance of coupons or vouchers from user account amounts to withdrawal, anchor shall be responsible for making the TDS before issuing such coupons or items in kind.

9. Withdrawal in kind – winning of the game is a prize in kind

It will be the responsibility of the anchor to ensure that tax has been paid in respect of the net winnings before the release of the prize in kind. i.e., ask the winner to deposit tax to the government in the form of Advance tax and collect the tax paid receipt.

10. Valuation of winnings in case prize in kind

(a) Prize in kind bought by anchor – Purchase prize of the prize in kind.

(b) Prize in kind manufactured by anchor – the price it charges to its customer.

11. Relaxation for insignificant withdrawals upon satisfying all the below 3 conditions

(i) The amount withdrawn consisting of net winnings does not exceed Rs. 100/- in a month.

(ii) Upon exceeding Rs. 100/- in the same month or next month or at the end of the FY anchor must make the TDS on above Rs. 100/- as well.

(iii) Anchor shall take responsibility to make deposit TDS on above Rs. 100/- if there is no sufficient balance in user wallet

12. Relaxation on penal consequences in the intervening period i.e., between 1st of April 2023 and the date on which the Rules I guidelines are issued

Anchor is expected to carry out the above responsibility as mentioned in the above guidelines w.e.f 1st April 2023 itself, if there is any shortfall in deductions for April 2023 may be deposited by 7th of June 2023. There will not be any penal consequences