Gaming industry welcomes TDS change, awaits clarity on GST | Budget 2023

In the Budget 2023, Finance Minister Nirmala Sitharaman announced a 30 per cent tax on the “net winnings” from online games. Clarifying the taxation policy further, she announced the removal of the minimum threshold limit of Rs 10,000 for calculating the tax deducted at source (TDS).

The 30 per cent tax will have to be paid at the time of withdrawal of the winnings or at the end of the financial year. Also, TDS will be applicable on winnings, and the ultimate responsibility of the tax will be borne by the person responsible for paying the winnings.

Two new sections were added to the Income Tax Act to incorporate the changes. These were 194BA for TDS of winnings from online games for online intermediaries and 115BBJ for computation of taxes for those who earn income from winnings of online games.

Gaming platforms and experts welcomed the move and said it would lead to more transparency in the sector.

“We applaud the government’s significant initiative to rationalise direct taxes in the online gaming sector. The amendment to sections 194B and 115BB of the Income Tax Act 1961 specifying that TDS be calculated on net winnings and thereby allowing offset of losses are steps in the right direction,” said Sameer Barde, chief executive officer (CEO) of E-Gaming Federation (EGF).

“We now await finer details on the computation mechanism so as to aptly bring the amendment into practice,” he added.

Sunil Yadav, CEO of gaming platform PlayerzPot, said, “It is a welcome move to define the future of the online gaming industry to remove the minimum threshold of Rs. 10,000 for TDS and to clarify taxability. The action will result in transparency, a clear legal identity, and standardised taxation for online gaming.”

The Centre has also made a distinction between “games of skill” and “games of chance” in the Finance Bill, signalling that both might get a separate tax structure in future.

However, now the industry is looking forward to the clarification on the Goods and Services Tax (GST) policy for the sector.

“The single most important aspect that the sector awaits clarity on and something that would decide its fate is the outcome from a group of ministers on the GST. We are hopeful that the outcome would retain the current 18 per cent tax slab on gross gaming commissions, and promise to overachieve the $ 10 trillion economy goal by Prime Minister well before 2030,” said Paavan Nanda, co-founder of WinZO.

The IT ministry recently proposed regulating online gaming and plans to formalise a structure. It has been in the works since the Centre set up an inter-ministerial task force to regulate the sector. According to reports, the GST Council is also working on the rules to clarify GST implications on the sector.

In the Budget, FM Sitharaman also announced 100 new labs for developing 5G applications in India. She also lowered the custom duty on imports of mobile parts.

Experts said that these would improve the efficiency of gaming as well as its affordability.

“Developer dedication to expanding mobile gaming in India and the advent of different employment opportunities through mobile gaming have all contributed to an increase in the number of Indians adopting mobile gaming. This has also contributed to the growth of the mobile device sector, as professional gamers frequently seek to upgrade their devices as they progress in their career. Even casual gamers seek better devices in their gaming journey,” said Animesh Agarwal, founder and CEO of 8bit Creatives.

“It will be fascinating to observe the next growth surge of gaming in India and how it contributes to and parallels the rise of the electronics industry,” he added.

Voices:

Vikash Sureka, CFO, Mobile Premier League (MPL):

“In addition, the regulations being drafted by the Ministry of Electronics and Information Technology (MeitY) will create a favourable environment for the industry to flourish. We eagerly await the government’s direction on this and are also keen to learn more about the GST mechanism for online gaming. A clear, fair tax rate will boost investor confidence and create a conducive business environment.”

Rahul Tewari, CFO, Games24x7:

“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…we will await to get more clarity from the department on the computation mechanism.”

Roland Landers, CEO, All India Gaming Federation:

“The online gaming industry welcomes the budget announcement by the Hon’ble Finance Minister, particularly in relation to the rationalisation of direct taxation for online gaming. We are happy to note that the Finance Bill carves out the distinction between betting and gambling activities and online games, by introducing a new section 194BA which taxes a user’s net winnings from online games at the end of the financial year.”

Siddharth Sharma, VP of Business Strategy, Head of Digital Works:

“The inclusion of a specific provision for online gaming under Sec 194B of the Income Tax Act is not only progressive but also a win-win scenario for both the government and the industry. Deducting TDS on net winnings at the end of a financial year will catalyse the growth of this sunrise sector even further, and this goes to show that this government has applied itself to solve the needs of both gamers and the industry. This is exactly the kind of outlook India needs from the government in today’s digital economy.”

Rishabh Bhansali, co-founder, FanClash:

“We are extremely delighted with the propositions made in today’s budget and looking forward to the golden days that are in store for fantasy Esports and gaming in the country.”

Lokesh Suji, director of the Esports Federation of India and VP of the Asian Esports Federation (AESF):

“With the numbers further upscaling and 5G acting as a catalyst that fuels the industry’s flourishment, we are going to witness monumental growth within the Esports sector in the coming years. As we are still awaiting clarity on the taxability for Esports, we are hopeful that the decisions will be in favour of the community and impact it positively.”

Ankur Singh, CEO and founder, Witzeal Technologies:

“Fostering the development of start-ups in the online gaming industry, the initiative of ‘Make AI in India, make AI work in India’ will potentially boost the growth of gaming studios.”

Suhas Khullar, CFO, Loco:

“The intention to set up 100 labs for developing applications using 5G services has the potential to open up a wide range of prospects for the ecosystem, including esports.”