Finance Act 2023 inserted a new section 194BA in the Income-tax Act, 1961 with effect from 1st April 2023. As per section 194BA, a person who is responsible for paying to any person any income by way of winnings from any online game during the financial year to deduct income-tax on the net winnings in the person’s user account. Tax is required to be deducted at the time of withdrawal as well as at the end of the financial year. The manner of computation of net winning is prescribed in Rule 133 of the Income-tax Rules 1962, vide notification no. 28/2023 dated 22nd May 2023. In this article, manner of computation of Net Winning as prescribed in Rule 133 is explained with an example.
As per section 194BA, TDS is required to be deducted on Net Winning. Before knowing the computation of Net Winning, it is important to understand some terminology in this regard, which are as under:
A) Taxable deposit means any amount deposited in the user account which is not a non-taxable deposit.
As per circular No. 5 of 2023 dated 22.05.2023 issued by CBDT, any incentives/bonus which is withdrawable, will form part of taxable deposit.
B) Non-taxable deposit means the amount deposited by the user in his user account and which is not taxable. As per circular No. 5 of 2023 dated 22.05.2023 issued by CBDT, any incentives/bonus which is not withdrawable, will not form part of Non-taxable deposit.
C) Withdrawal means any amount withdrawn by the user from any user account. As per circular No. 5 of 2023 dated 22.05.2023 issued by CBDT, It is important to note that 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.
As per Rule 133 of the Income Tax Rules, 1962 Net winnings from online games shall be calculated using the following formula:
Net winnings during the previous year =(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Aggregate amount withdrawn from the user account during the financial year; |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 (Excluding Incentive/Bonus Which is Non-Withdrawable) |
| D | Closing balance of the user account at the end of the financial year (Excluding Incentive/Bonus Which is Non-Withdrawable) |
With the help from above formula, one can calculate Net Winning for the Financial Year. If the amount of Net winning is NEGATIVE, then that amount will be ignored.
However, TDS is required to be deducted at the time of withdrawal and at the end of the year.
So, for any withdrawal made during the year, TDS is required to calculated as per formula given by income tax department.
For easy understanding of calculations, Consider the example given hereunder:
Below is the one sample User account for the financial year maintained with the registered with an online gaming intermediary.
|
User Account for the FY 2023-24 |
|||||||
| Date | Particulars | Debit Amount (Rs.) | Credit Amount (Rs.) | Balance Amount (Rs.) | Notation | ||
| 01/04/2023 | Opening Balance | – | C | ||||
| 02/04/2023 | Joining Bonus/ referral bonus/Incentives/ promotional money (Non-Withdrawable) | 500 | 500 | ||||
| 02/04/2023 | Amount Added by User | 4,000 | 4,500 | B | |||
| 03/04/2023 | Loss from Online Game | 500 | 4,000 | ||||
| 04/04/2023 | Winning from Online Game | 1,500 | 5,500 | ||||
| 05/04/2023 | Loss from Online Game | 800 | 4,700 | ||||
| 07/04/2023 | Winning from Online Game | 4,000 | 8,700 | ||||
| 08/04/2023 | Amount Withdraw | 2,800 | 5,900 | A | |||
| 11/04/2023 | Loss from Online Game | 1,000 | 4,900 | ||||
| 12/04/2023 | Winning from Online Game | 500 | 5,400 | ||||
| 05/03/2024 | Joining Bonus/ referral bonus/Incentives/ promotional money (Withdrawable) | 500 | 5,900 | ||||
| 05/03/2024 | Amount Added by User | 2,500 | 8,400 | B | |||
| 10/03/2024 | Winning from Online Game | 200 | 8,600 | ||||
| 12/03/2024 | Amount Withdraw | 3,000 | 5,600 | A | |||
| 15/03/2024 | Amount Withdraw | 1,500 | 4,100 | A | |||
| 31/03/2024 | Closing Balance | 4,100 | D | ||||
Based on above account, Net winning for the Financial Year will be calculated as under:
Net winnings during the previous year =(A+D)-(B+C)
(7300+3600) – (6500+0) = 4400
|
A |
Aggregate amount withdrawn from the user account during the financial year; | 7,300 |
| B | Aggregate amount of non-taxable deposit made in the user account by the assessee during the financial year | 6,500 |
| C | Opening balance of the user account at the beginning of the financial year (Excluding Incentive/Bonus Which is Non-Withdrawable) | 0 |
| D | Closing balance of the user account at the end of the financial year (Excluding Incentive/Bonus Which is Non-Withdrawable) | 3,600
(4100-500) |
Net Winning for FY 2023-24 will be Rs.4,400/- on which TDS is required to be deducted during the FY.
However, TDS is required to be made at the time of withdrawal and at the end of the year. In that case, calculation at the different withdrawal and at the end of the year is required to be made.
The same is explained hereunder with the help of above user account example:
|
|
Particulars | Net Winning on Which TDS to be Deducted | ||
| 1 | At the time of Withdrawal of Rs. 2,800/- on 08.04.2023 | |||
| Net winnings =A-(B+C+E) | NIL
(As negative) |
|||
| A | Aggregate amount withdrawn from the user account during the financial year till the time of subsequent withdrawal | 2,800 | ||
| B | Aggregate amount of non-taxable deposit made in the user account by the owner of such account till the time of withdrawal | 4,000 | ||
| C | Opening balance of the user account at the beginning of the financial year (Excluding Incentive/Bonus Which is Non-Withdrawable) | 0 | ||
| E | Net winnings comprised in the earlier withdrawal or withdrawals Computed as per formula, during the financial year till the time of withdrawal if TDS has been deducted on such winnings | Not Applicable as this is first withdrawal of FY | ||
| 2 | At the time of Withdrawal of Rs. 3,000/- on 12.03.2024 | |||
| Net winnings =A-(B+C+E) | NIL
(As negative) |
|||
| A | Aggregate amount withdrawn from the user account during the financial year till the time of subsequent withdrawal | 5,800
(2800+3000) |
||
| B | Aggregate amount of non-taxable deposit made in the user account by the owner of such account till the time of withdrawal | 6,500 | ||
| C | Opening balance of the user account at the beginning of the financial year (Excluding Incentive/Bonus Which is Non-Withdrawable) | 0 | ||
| E | Net winnings comprised in the earlier withdrawal or withdrawals Computed as per formula, during the financial year till the time of withdrawal if TDS has been deducted on such winnings | NIL
(As No TDS on Withdrawal made on 08.04.2023) |
||
| 3 | At the time of Withdrawal of Rs.1,500/- on 15.03.2024 | |||
| Net winnings =A-(B+C+E) | 800 | |||
| A | Aggregate amount withdrawn from the user account during the financial year till the time of subsequent withdrawal | 7,300
(2800+3000 +1500) |
||
| B | Aggregate amount of non-taxable deposit made in the user account by the owner of such account till the time of withdrawal | 6,500 | ||
| C | Opening balance of the user account at the beginning of the financial year (Excluding Incentive/Bonus Which is Non-Withdrawable) | 0 | ||
| E | Net winnings comprised in the earlier withdrawal or withdrawals Computed as per formula, during the financial year till the time of withdrawal if TDS has been deducted on such winnings | NIL
(As No TDS on Withdrawal made on 08.04.2023 & 12.03.2024) |
||
| 4 | At the end of the FY on 31.03.2024 | |||
| Net winnings =(A+D)-(B+C+E) | 3,600 | |||
| A | Aggregate amount withdrawn from the user account during the financial year
|
7,300
(2800+3000 +1500) |
||
| B | Aggregate amount of non-taxable deposit made in the user account by the owner of such account | 6,500 | ||
| C | Opening balance of the user account at the beginning of the financial year (Excluding Incentive/Bonus Which is Non-Withdrawable) | 0 | ||
| D | Closing balance of the user account at the end of the financial year (Excluding Incentive/Bonus Which is Non-Withdrawable) | 3,600 | ||
| E | Net winnings comprised in the earlier withdrawal or withdrawals Computed as per formula, during the financial year on which TDS deducted | 800
(As TDS made at the time of Withdrawal on 15.03.2024) |
||
| Total Amount of Net Winning on Which TDS is to be deducted | 4,400 | |||
It can be seen from the above table, that TDS is required to be made on Rs.800/- at the time of withdrawal on 15.03.2024 and at the end of the financial year on 31.03.2024 on Rs.3,600/-. So, TDS will get deducted on total Rs.4,400/-.
The same is reconciled with the Total Net Winning amount calculated above for the whole financial year.
Conclusion:
For the purpose of section 194BA, calculation of Net Winnings is required to be made at the time of each withdrawal and also at the end of the financial year. Negative Net winning shall not be considered for TDS purpose. Online gaming intermediaries are required to take due care for this purpose.
Reference:
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Very helpful and clear