Income Earned Through Online Gaming Is Taxable? Check Details

Online gaming organisations deduct 30 per cent TDS (tax deducted at source) on any winnings drawn by a user above Rs.10,000 per transaction.

New Delhi: The Indian online gaming industry has grown phenomenally in the last ten years, and it’s expected to become a $5 billion industry by 2025. In several instances, players also have earned real money from online gaming platforms, including card gaming platforms, battlegrounds, sporting games, and quizzes.

Three bodies of the online gaming industry in India, the E-Gaming Federation (EGF), Federation of Indian Fantasy Sports (FIFS) and All India Gaming Federation (AIGF), had recently approached the Central Board of Direct Taxes (CBDT) to reconsider TDS regime changes that have been effective from 1 April 2023.

Tax On Online Game Winnings

Online gaming organisations deduct 30 per cent TDS (tax deducted at source) on any winnings drawn by a user above Rs.10,000 per transaction. Even though the threshold of Rs 10,000 is still in place as of 1 April 2023, now the taxation will depend on the annual income of the game user.

Sections 115BBJ and 194BA have been introduced by Finance Bill 2023 to tax the user’s winnings on different gaming platforms. Under Section 115BBJ, income tax would be charged on net winnings for the previous fiscal year at a rate of 30 per cent. Section 194BA mainly deals with TDS applicable on net winnings in the user’s gaming account at the end of the fiscal year. So, your net winnings from online gaming platforms at the end of a fiscal year would be taxed at 30 per cent.

As per cleartax, the introduction of these sections suggests that soon, TDS might also be applicable on winnings below Rs 10,000 as well.

Online Gaming Tax – Explained With Example

Imagine you paid Rs 1,000 to participate in an online game and won Rs 40,000 from that. In this scenario, the gaming company will deduct your TDS on Rs 39,000 (Rs 40,000 – Rs 1,000) at 30 per cent. Hence, you will have to pay a tax of Rs 11,700, which will get deposited to the government and the remaining balance of Rs 27,300 will be credited into your account as your income from the win, according to cleartax.

Key Sources Of Revenue Collection Through Online Gaming

Contest entry amount (CEA) and gross gaming revenue: The finance ministry has proposed to levy a GST of 28 per cent on the Gross Gaming Revenue (GGR) of online gaming. According to cleartax, 18 per cent GST is charged simply on the CEA, but the proposed rate is higher. The online gaming industry has potential to become a big part of Indian economy, but enforcing 28 per cent GST will ultimately hold back this sector, according to the co-founder of Winzo Games, Saumya Singh Rathore.

Winning Real Money From Online Games: Several online gaming platforms such as Ludo Empire, Dream 11 and others provide a chance to win real money for players. This income is taxable under the heading of ‘Income from other sources’ under Sections 115BBJ and 194BA. A flat rate of 30 per cent gets charged without the inclusion of any threshold.

Distribution During Game Tournaments: As discussed above, winnings from different gaming tournaments are also charged under Sections 115BBJ and 194BA.

Referral and Joining Bonuses: Under the aforementioned sections, any real money earned as a joining or referral bonus is not taxable under the mentioned sections. It is taxable on a net basis as per the slab rate applicable for individuals. No tax will be payable if the earned income is below the maximum chargeable tax amount.