Understand the taxation of winnings from online gaming like Dream11, Jungle Rummy, etc., as Section 115BBJ replaces Section 115BB before April 1, 2024. Learn about the new TDS provisions under Section 194BA, effective from July 1, 2023, with no threshold limit, impacting online gaming companies and players. Stay informed to comply with tax regulations and avoid penalties. Consult with a CA or tax consultant for personalized advice. The article is for study purposes, and the author is not responsible for any decisions based on the information provided.
The term ‘Online game’ is defined as a game that is offered on the internet and which is accessible by a user through a computer resource including telecommunication device. This definition is likely to bring within its ambit, any game which is played on the internet.
During the last few years online gaming company witnessed high spike in the new registration and many new age startups have sprung up in India. Online rummy, poker and other online games that offer real money are experiencing real-time growth in the recent past. The outbreak of covid pandemic played a great role in the growth of online gaming companies. Specially youngsters are crazy about online games and the outbreak of online gaming industry looks very bright in the years to come.
The playing of online games which involve real money like rummy, jungle rummy, dream 11, pocker, fare play etc. are legal in India and the Hon’ble Supreme Court has allowed the playing of online games invoice money.
Before 1st April 2024, online gaming was covered under Section 115BB i.e. “tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whosoever” As the online gaming are distinctive in nature so special section 115BBJ has been instead in Finance Act 2023.
Section 115BBJ of the IT Act provides that where the total income of the assessee includes any income by way of winnings from any online game, the income tax shall be payable on the amount of “net winnings” from such online game at the rate of 30% plus applicable cess & surcharge. Here the important thing to note is that the benefit of basic exemption limit is not available in case of winning from online game and tax is payable at flat rate.
In case of winning in kind, the online gaming platform before releasing the winnings ensures that applicable tax has been paid in respect of the net winnings.
A new section 194BA for TDS deduction on net winning from online game is inserted in finance act 2023. The section provides for 30% TDS deduction at the time of withdrawal or at the end of financial year irrespective of the threshold limit. In case of withdrawal from user account during the financial year, the tax shall be withheld at the time of such withdrawal on net winnings comprised in the withdrawal and on remaining amount at the end of fiscal year. The threshold limit of 10,000/- which was earlier applicable in case of 194B has been removed. Meaning thereby even winning amount is less than Rs. 10,000/- The new section 194BA will be effective from 1st July 2023. In simple word from 1 April to June 2023 for TDS deduction limit of Rs. 10,000/- will apply from 1 July, this rule will change, and there will be no threshold for application of TDS, which means any transaction on an online gaming platform will incur TDS.
TDS will be deducted at the rate of 30% (plus applicable cess & surcharge). Here what is taxable is net winning, for example if an assess has paid Rs 500/- as an entry fee and he won Rs. 33500/- then the online gaming company will deduct TDS on Rs. 33,000/- (Rs. 33,500/- winning less entry fee Rs. 500/-) The tax of Rs. 9,900/- would be deposited to the government. For taxation purpose income is considered as “Income from Other Source” and both TDS and income tax to be computed on the net winnings.
Scrapping the withholding tax threshold from the existing INR 10,000 so as to bring within its ambit large base of players. Online gaming companies shall now have to keep a watch on the winnings of each player during three timeframes: during the year (for the purpose of section 194B), at the year end, and at the time of every withdrawal.
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Disclaimer: The above article is prepared for understanding & study purpose. We recommend you consult your CA or tax consultant before taking any decision & author will not be responsible for any lose due to decision take based on above article.
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I will more money win but tax has been deducted i request you refund on itr of junglee rummy.
thank you
PV Year FY 2022-23, My Friend won 5 lacs and lost 8 lacs. TDS is deducted on 5 lacs. NET in FY 2022-23 he is in loss in Dream 11. Will he eligible to claim refund for TDS
I had won 15 lacs on 3rd March 2023. Flat 30 percent tax was deducted. Can I file return for refund?
You should file the ITR however you are not eligible for refund, as the Income is chargeable @ 30% +cess without any deduction or basic exemption limit.