With the expansion of the eSports industry in the country, and eSports coming to the fore, a slew of changes is being brought in relating to eSports. Fast-paced developments are taking place in the industry as the government and the general public of the country come to terms with the foothold this industry has currently.
On Wednesday, the government recommended eliminating the current threshold limit of Rs 10,000 and taxing net profits from online gaming at a rate of 30%. Two new measures for Tax Deducted at Source (TDS) on online gambling were suggested in the Budget 2023–24.
This comprises the abolition of the existing Rs 10,000 threshold for the application of TDS and a 30% tax on the payment of net winnings in a financial year. At the conclusion of the fiscal year, tax must be withheld at source if the money is not withdrawn from the user’s account.
Sanjay Malhotra, the Revenue Secretary, stated that the tax will be on net gains on the whole amount. He said: “When you take out the money from the winning accumulated pool, the withholding tax would be levied on that.”
Removal of Rs. 10,000 threshold
The Rs 10,000 threshold was eliminated as part of the other adjustment to the TDS provision for online gambling. Malhotra said that the action was taken after the tax agency learned that some online gaming organisations were maintaining winning amounts below the cutoff so they would not be subject to the TDS provision.
Revenue from the country’s mobile gaming market is predicted to reach $5 billion by 2025. It has thus recently been the focus of intense government scrutiny from the perspectives of GST and Income Tax.
“The Budget seeks to introduce a withholding tax on entire net winnings of any such user of online gaming platform. The gaming industry would need to revamp its strategy as these provisions along with ongoing discussions in GST Council could impact the user psyche similar to taxation of cryptocurrencies introduced in the last Budget,” Nangia Andersen LLP Partner Sudin Sabnis said.
New Sections added for online games
Amit Maheshwari, a tax partner at the consulting and tax firm AKM Global, stated that two new sections have been suggested in relation to online gaming. Sections 115BBJ and 194BA provide TDS on net wins in the user account at the conclusion of the fiscal year.
Section 115BBJ taxes such funds at a rate of 30%. In addition to this, some definitions have been proposed to be added including ‘’online game’, ‘online gaming intermediary’, ‘user’, ‘user account’, etc.
While this may seem like an added burden for gamers, in truth, it is a stepping stone for eSports to receive due recognition that it deserves. It will ensure that eSports is seen as a serious and viable career option and that it is conducted in a more organized manner.
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