Tax on winnings from Online Games
The online gaming industry has seen a tremendous spurt in recent years. A large number of users are playing online games on various gaming apps like PokerBaazi, RummyCircle, Dream11, etc. Though there are taxation provisions under the Income Tax Act to cover earnings through online gaming but the provisions at present are general and applicable to various games whether offline or online. To make the legal position more clear, the Government has proposed certain amendments in the rules relating to taxation on online gaming in the Budget 2023. This article discusses the proposed changes in Union Budget 2023 in the context of online gaming.
Amendment in Section 115BB & new section 115BBJ
Presently, Section 115BB provides as follows:
“Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of-
(i) The amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of 30%; and
(ii) The amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause i).”
Looking into the interpretation of the above section, winning from online games of any sort is already covered under section 115BB and is taxable at the rate of 30% plus cess 4% i.e. 31.20%. But it has been seen that in recent times, there has been a rise in the users of online games. Therefore, there is a need to bring in specific provisions regarding the taxability of online games due to their different nature, being easily accessible vide the internet and computer resources with a variety of playing options and payment options.
Accordingly, Section 115BB of the Act has been amended to exclude income from winnings from online games from the purview of this section from the A.Y. 2024-25 and a new section 115BBJ has been proposed to be inserted to tax winnings from online games from that assessment year.
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Amendment in Section 115BB of the Act is as follows: “Provided that nothing contained in this section shall apply to income by way of winnings from any online game for the assessment year beginning on or after the 1st day of April, 2024. Explanation- For the purposes of this section, - (ii) “Online games” shall have the meaning assigned to it in section 115BBJ.” |
The reading of the above-proposed amendment makes it clear that income arising from winnings from any online games will not be taxed u/s 115BB w.e.f. A.Y. 2024-25. In its place, a new section 115BBJ has been inserted by the Union Budget 2023 which is more specific in respect of the taxation of winnings from online games.
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Newly inserted Section 115BBJ “Notwithstanding anything contained in any other provisions of this Act, where the total income of an assessee includes any income by way of winnings from any online game, the income-tax payable shall be the aggregate of- (i) the amount of income-tax calculated on net winnings from such online games during the previous year, computed in the manner as may be prescribed, at the rate of 30%; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the net winnings referred to in clause (i).
Explanation- For the purposes of this section,- (i) “Computer resource” shall have the same meaning as assigned to it in clause (e) of the Explanation to section 144B; (ii) “internet” means the combination of computer facilities and electromagnetic transmission media, and related equipment and software, comprising the interconnected worldwide network of computer networks that transmits information based on a protocol for controlling such transmission; (iii) “online game” means a game that is offered on the internet and is accessible by a user through a computer resource including any telecommunication device.” |
Considering the rise in the users of online games, the above new section 115BBJ has been inserted to provide for a tax on winnings from online games at the flat rate of 30% plus a cess 4% i.e. 31.20%. The new section will not make any change in the taxability of these transactions as before and even the tax rate will also be the same. However, the Government felt a necessity to make separate provisions in this regard looking at the complexity and volumes of online gaming these days. It has been made clear that tax @ 30% shall apply on the net winnings from the online games.
The method of calculating “net winnings” has not been defined by section 115BBJ but the section provides that the manner of calculating “net winnings” shall be prescribed by the Government. It is generally seen in these gaming apps that the user infuses some amount for playing games and keeps on rotating the winnings till the final withdrawal.
In our opinion, the tax will be calculated @ 30% on the net winning amount comprised in such final withdrawal. There might also be a case where the user does not make any withdrawals of winnings. In such case, the tax will be calculated @ 30% on the winnings comprised in balance standing to his credit in the gaming app. It is also important to see the procedure to be prescribed by the CBDT in the near future once these provisions are approved by the Parliament. But, it is sure that the Government will surely track the transactions on online gaming platforms in the future so online gaming players should now be careful while filing their income tax returns and duly include winnings from online games in their ITRs.
Disclaimer: The above article is meant only for educational purposes and does not carry any persuasive value. Therefore, the readers are advised to act in consultation with any professional before applying the information contained in this article. Taxwink is not responsible for any loss or damage caused to any person on account of any information contained in this article.
About Author: The article is contributed by CA Naveen Goyal who is a qualified Chartered Accountant with an experience of over 16 years in the field of Direct & Indirect Taxes. He is a prolific writer with a zeal to share knowledge on various issues pertaining to taxation laws in India. He can be reached at: ca.naveen80@gmail.com
