TDS on all winnings from online gaming to come into effect from April 1: Budget 2023

Apart from making changes in taxation of debt mutual funds and offering marginal relief to small taxpayers with income exceeding Rs 7 lakh, the Budget 2023 has made an amendment to the TDS threshold applicable to online gaming. As per the amendment made in Finance Bill, 2023, the TDS on online gaming will be effective from April 1, 2023 instead of July 1, 2023 as proposed earlier.

The Budget 2023 firstly announced that TDS on online gaming will come into effect from July 1, 2023 for FY 2023-24. However, the government made the change to the date of applicability to April 1, 2023 while passing the Finance Bill in Lok Sabha today.

Shashi Mathews, Partner, IndusLaw says, “The Finance Bill, 2023 has been passed by the Lok Sabha, today. It is interesting to note that the Government had proposed quite a few amendments to the Finance Bill, as was presented during the Budget Speech. Taking note of the representations made by the Gaming industry, the Government had proposed to bring the latest TDS provisions, applicable to online gaming, into effect from 01st April, 2023. Further, the TDS on the online gaming was also proposed to be deducted at the double rate, in case of non-compliance in return filing by the concerned deductee, where the TDS amount in the past year was more than 50,000. It appears that these amendments have now been accepted. This may require the gaming operators to seek an undertaking and necessary proofs from the users, to ensure proper compliance with this provision.”

Budget 2023 has removed the threshold for TDS on online gaming winnings. Till March 31, 2023 (i.e., FY 2022-23), TDS on winnings made on online games was applicable if the winnings exceeded Rs 10,000 in a financial year. From April 1, 2023, TDS on winnings from online games will be deducted for every rupee earned, net of entry fees (if any). The rate at which TDS on winnings from online games is deducted at 30 per cent.

Here is an example to understand this. Suppose an individual paid an entry free of Rs 1,000 and won Rs 35,500. Then, the online gaming company would deduct TDS on Rs 34,500 (Rs 35,500 less of Rs 1000). The tax of Rs 10,350 (Rs 34,500*30%) would be deposited to the government and the balance Rs 24,150 would be credited to the individual account.

As per current income tax laws, winnings are required to be reported under the head ‘Income from other sources’ while filing income tax return (ITR).

Do note that irrespective of whether TDS is deducted or not from online gaming winnings, one is required to report them in their income tax return and pay income tax accordingly. The winnings from online mobile games are taxed under the head ‘Income from other sources’.