Winnings From Online Games
Introduction
Income from online games is taxable under Section 115BBJ of the Income-tax Act, 1961, at a flat rate of 30%. The Finance Act, 2023, introduced a new scheme for taxing such winnings, effective from the assessment year 2024-25. Tax is deducted at source (TDS) under Section 194BA at the rate of 30% at the time of withdrawal or at the end of the financial year if no withdrawal is made.
Meaning of an online game
“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.
Taxability of Winnings from Online Games
- Net winnings from online games is taxed under Section 115BBJat a rate of 30%, irrespective of whether it is a game of skill or chance.
- Net winnings are computed as prescribed under Rule 133 of the Income-tax Rules.
TDS Provisions on Online Gaming Winnings
- Section 194BAapplies to all online gaming winnings from 01-04-2023.
- Tax is deducted at 30% on the net winnings:
- At the time of withdrawal.
- At the end of the financial year if no withdrawal is made.
No Basic Exemption Limit
- The benefit of the basic exemption limit is not available
No deduction/allowance
- No deduction, including those under Chapter VI-A (e.g., 80C, 80D), is allowed for income from lotteries, puzzles, races, games, gambling, or betting.
Tax on Winnings from Online Games
Scope of Section 115BBJ
- Applicable to all online games, regardless of whether they involve skill or chance.
- Overriding effect over other provisions, meaning professional gamers and casual players alike are subject to this tax.
- Includes winnings from fantasy sports, e-sports, and education-based games.
Computation of Net Winnings
Net winnings are determined using the following formula:
Net Winnings = (Withdrawals + Closing Balance) – (Opening Balance + Non-Taxable Deposits)
- Non-Taxable Deposits: Deposits made from already taxed income or non-taxable sources (e.g., borrowed money).
- Taxable Deposits: Any amount credited as winnings, including direct payments outside the gaming account.
- Withdrawals: Any amount withdrawn by the user, except transfers between accounts within the same platform.
If winnings are paid in-kind or outside the gaming account, an equivalent money value is assumed to have been deposited and withdrawn simultaneously.
Tax Deduction at Source (TDS) under Section 194BA
- Deductor and deductee can be any person.
- TDS at 30% applies to net winnings.
- Deduction occurs at the time of withdrawal or, if no withdrawal is made, at the end of the financial year.
Income-tax Rules
Rule – 133
Calculation of net winnings from online games for purpose of section 115BBJ.
[133. (1) Net winnings from online games during the previous year, for the purposes of section 115BBJ, shall be calculated using the following formula, namely:—
Net winnings = (A+D) – (B+C), where—
A = Aggregate amount withdrawn from the user account during the financial year;
B = Aggregate amount of non-taxable deposit made in the user account by the assessee during the financial year;
C = Opening balance of the user account at the beginning of the financial year; and
D = Closing balance of the user account at the end of the financial year.
(2) Net winnings comprised in the first withdrawal during the financial year, for the purposes of section 194BA, shall be calculated using the following formula, namely:—
Net winnings = A – (B+C), where—
A = Amount withdrawn from the user account;
B = Aggregate amount of non-taxable deposit made in the user account by the owner of such account during the financial year, till the time of such withdrawal; and
C = Opening balance of the user account at the beginning of the financial year.
(3) Net winnings in the formula given in sub-rule (2) shall be zero, if the sum of amounts B and C is equal to or greater than the amount A.
(4) Net winnings comprised in each subsequent withdrawal during the financial year, for the purposes of section 194BA, shall be calculated using the following formula, namely:—
Net winnings = A – (B+C+E), where—
A = Aggregate amount withdrawn from the user account during the financial year till the time of subsequent withdrawal including the amount of such subsequent withdrawal;
B = Aggregate amount of non-taxable deposit made in the user account by the owner of such account during the financial year, till the time of such subsequent withdrawal;
C = Opening balance of the user account at the beginning of the financial year; and
E = Net winnings comprised in the earlier withdrawal or withdrawals computed under sub-rule (2), or under this sub-rule, during the financial year till the time of subsequent withdrawal if tax has been deducted in accordance with the provision of section 194BA on winnings comprised in such withdrawal or withdrawals.
(5) Net winnings in the formula given in sub-rule (4) shall be zero, if the sum of amounts B, C and E is equal to or greater than the amount A.
(6) Net winnings comprised in the user account at the end of the financial year, for the purposes of section 194BA, shall be calculated using the following formula, namely:—
Net winnings = (A+D) – (B+C+E), where—
A = Aggregate amount withdrawn from the user account during the financial year;
B = Aggregate amount of non-taxable deposit made in the user account by the owner of such account during the financial year;
C = Opening balance of the user account at the beginning of the financial year;
D = Closing balance of the user account at the end of the financial year; and
E = Net winnings comprised in the earlier withdrawal or withdrawals computed under sub-rule (2), or sub-rule (4), during the financial year if tax has been deducted in accordance with the provision of section 194BA on winnings comprised in such withdrawal or withdrawals.
(7) Net winnings in the formula given in sub-rule (6) shall be zero, if the sum of amounts B, C and E is equal to or greater than the sum of amount A and D.
Explanation 1.—For the purposes of this rule—
a. “non-taxable deposit” means the amount deposited by the user in his user account and which is not taxable;
b. “taxable deposit” means any amount deposited in the user account which is not a non-taxable deposit and includes any amount paid directly to the user not through the user account; and
c. “withdrawal” means any amount withdrawn by the user from any user account.
Explanation 2.—For the removal of doubts, it is hereby clarified that—
a. user account shall include every account of user, by whatever name called, which is registered with the online gaming intermediary and where any taxable deposit, non-taxable deposit or the winnings made by the user is credited and withdrawal by the user is debited;
b. whenever there is payment to the user in kind or in cash, or partly in kind and partly in cash, which is not from the user account, the provisions of this rule shall apply to calculate net winnings by deeming that the money equivalent to such payment has been deposited as taxable deposit in the user account and the equivalent amount has been withdrawn from the user account at the same time and shall accordingly be included in amount A;
c. whenever there are multiple user accounts of the same user, each user account shall be considered for the purposes of calculating net winnings and the deposit, withdrawal or balance in the user account shall mean aggregate of deposit, withdrawal or balance in all user accounts;
d. whenever there are multiple user accounts of the same user, transfer from one user account to another user account, maintained with the same online gaming intermediary, of the same user shall not be considered as withdrawal or deposit, as the case may be, for the purposes of deducting tax under section 194BA;
e. whenever there is taxable deposit in the form of bonus, referral bonus, incentives, promotional money, discount by whatever name called; and such deposit can only be used for playing the online games and not for withdrawal or any other purposes, such deposit shall be ignored for the purposes of calculation of net winnings and shall not be included in amount B or amount C or amount D; and
f. whenever any bonus, referral bonus, incentives, promotional money, discount, by whatever name called, is not considered as part of amount B or amount C or amount D under clause (e) and subsequently they are recharacterised and allowed to be withdrawn, they shall be deemed as taxable deposit at the time of such recharacterisation and it shall be deemed that the equivalent amount has been deposited in the user account at that time.]
Note:
67 Inserted by the IT (Fifth Amdt.) Rules, 2023, w.e.f. 22-5-2023.
