Budget 2023: Online gaming startups back separate treatment of gambling, online games

Notwithstanding the imposition of 30% tax on net winnings and removal of the Rs 10,000-threshold for tax deducted at source (TDS) on online gaming, startups in the sector have backed the Union Budget proposals given that the government has introduced a demarcation between gambling or betting, and online games.

The Budget 2023-24 proposed introduction of two new provisions for TDS on online gaming – levy of 30% on payment of net winnings in a financial year and removal of the current Rs 10,000 threshold for the levy of TDS.

Additionally, in case the amount is not withdrawn from the user account, tax shall be deducted at source at the end of the financial year.

At the post-Budget press conference, revenue secretary Sanjay Malhotra said that the tax would be applicable on net winnings on the aggregate value. “When you take out the money from the winning accumulated pool, the withholding tax would be levied on that,” he said.

Vikash Sureka, chief financial officer of online gaming unicorn Mobile Premier League said: “With the introduction of two new sections…the government has cleared ambiguities regarding TDS calculation for online gaming and simplifies the process for both companies and users.

The Finance Bill proposals allow TDS to be calculated either at the end of the financial year or at withdrawal. Sureka said that with this change, users who play multiple games will have the option to pay tax at year-end based on their net winnings, eliminating the need to pay tax on notional credit.

“For companies, the TDS calculation process is simpler, improving compliance. This positive step for the skill-gaming industry has us hopeful for continued government support and guidance,” he added.Prior to the Budget, the online gaming industry had sought that the government continue with the Rs 10,000-threshold for calculating the TDS.

In the explanatory memorandum to the Finance Bill, the government said: “It is seen that deductors are deducting tax…by applying the threshold of Rs 10,000 per transaction and avoiding tax deduction by splitting a winning into multiple transactions each below Rs 10,000. This is against the intention of the legislature”.

On the removal of the threshold, Games24x7 chief financial officer Rahul Tewari said: “It’s a progressive step as the government is creating a new section for the online gaming industry. It cements the recognition of online gaming as a distinct technology-driven entertainment sector. As mentioned, we will await to get more clarity from the department on the computation mechanism”.

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