The Section 194BA was introduced by the Finance Act 2023 to deduct tax at source on net winnings from any online games. The manner of computation of net winning has been prescribed in Rule 133[1] of the Income-Tax Rules, 1962. Further, the CBDT has also issued guidelines[2] for purpose of removing the difficulty in deduction of tax under Section 194BA.
The guidelines have given relaxation to the deductors in case of insignificant withdrawals. This has been done to lessen the compliance burden for the online gaming intermediaries where a large number of gamers play with very insignificant amounts, and their withdrawals are also very small. In these cases, the requirement to deduct tax on withdrawal has been relaxed in case the following conditions are satisfied:
Net winnings comprised in the amount withdrawn does not exceed Rs. 100 in a month; and
Tax not deducted on account of this concession is deducted at a time when the net winnings comprised in withdrawal exceeds Rs 100 in the same month or subsequent month or if there is no such withdrawal at the end of the financial year, and
The deductor undertakes the responsibility of paying the difference if the balance in the user account at the time of tax deduction under section 194BA of the Act is not sufficient to discharge the tax deduction liability calculated in accordance with Rule 133.
To understand the implication of this relaxation, let us consider an example.
Let’s say a gamer, Mr. X, has played multiple rounds in Dream11 from 1-04-2023 to 31-3-2024. The passbook of his wallet is as follows:
| Date | Particulars | Amount (In Rs.) |
| 01-04-2023 | Opening Balance of Wallet | 0 |
| 16-08-2023 | Sum Won from Online Gaming | 150 |
| 18-08-2023 | Sum Withdrawn | (50) |
| 20-08-2023 | Sum Won from Online Gaming | 50 |
| 21-08-2023 | Sum Withdrawn | (90) |
| 01-12-2023 | Sum Won from Online Gaming | 60 |
| 10-01-2024 | Sum Withdrawn | (90) |
| 31-03-2024 | Closing Balance of Wallet | 30 |
Now, we will see the tax which is to be deducted on each withdrawal and at the end of the financial year on the closing balance.
The withdrawal by Mr. X on 18-08-2023 is Rs. 50, which is less than a 100 and hence no TDS will be required to be deducted.
Now, in the same month, on 21-10-2023, he withdrew Rs. 90. As per the first condition, the withdrawal amount should be less than Rs. 100 in a month to avail the relaxation. However, in the present case, the total withdrawal for October is Rs. 140. As per the second condition, if the tax has not been deducted because of the relaxation, whenever the net winnings exceed Rs. 100 in the same or subsequent month, the tax has to be deducted. The net winnings on the date of withdrawal on 21-10-2023 will be calculated as follows:
|
Particulars |
Amount |
| Aggregate Amount Withdrawn from Wallet (A)
[Date Of Withdrawal: Rs. 50 On 18-08-2023, Rs. 90 On 21-10-2023] |
140 |
| Less: Aggregate Of Non-taxable Deposit | 0 |
| Less: Opening Balance Of The Wallet (C) | 0 |
| Less: Net Winnings Included In First Withdrawal And Subjected To TDS (E) | 0 |
| Net Winnings [ A – (B+C+E) ] | 140 |
What if the Rs. 90 was withdrawn in the month of November than in October? Should the TDS be deducted or not? Two interpretations of the clarifications are possible. Firstly, since the withdrawal in the month of November is less than Rs. 100, the first condition is satisfied. The second condition is also met, since although the net winnings may be Rs. 140, the net winnings which are comprised in the withdrawal have not exceeded Rs. 100, therefore, the deductor will not be required to deduct the tax. As per this interpretation, as long as the withdrawal in the subsequent month is not more than Rs. 100, the tax won’t be deducted. And, if, let’s say, in December, the user would have withdrawn Rs. 110, then since the net winnings comprised in his withdrawals are more than Rs. 100, the TDS would be deducted on the entire net winnings. It will be calculated as follows:
|
Particulars |
Amount |
| Aggregate Amount Withdrawn from Wallet (A)
[Date Of Withdrawal: Rs. 50 On 18-08-2023, Rs. 90 On 21-10-2023, Rs. 110 in November] |
250 |
| Less: Aggregate Of Non-taxable Deposit | 0 |
| Less: Opening Balance Of The Wallet (C) | 0 |
| Less: Net Winnings Included In First Withdrawal And Subjected To TDS (E) | 0 |
| Net Winnings [ A – (B+C+E) ] | 250 |
However, the issue with this interpretation is that if the user withdraws Rs. 90 only a month, then although he would have withdrawn Rs. 1080 in the financial year, no TDS would be deducted since the net winnings comprised in the withdrawal are always less than Rs. 100 for each month. The entire TDS, in this case, would be deferred till the end of the financial year. However, since the user has already withdrawn the winnings, the deductor would have to pay the TDS from his own pocket if the closing balance was not enough.
This would be against the purpose of the relaxation given to the gaming intermediaries who have a large number of users playing and withdrawing insignificant amounts. They would prefer not to avail of the relaxation given and rather deduct the TDS regardless of the value of the winnings.
The second interpretation is much more suited to the objective of relaxation. According to this, even if the withdrawal is less than Rs. 100 in the subsequent month if the net winnings exceed Rs. 100, the TDS is to be deducted. The ‘net winnings comprised in the withdrawal’ doesn’t mean that the withdrawal should be greater than Rs. 100, as per the first interpretation, but that the net winnings should be greater than Rs. 100 regardless of the value of withdrawal. So, if the user withdraws Rs. 90 every month, the TDS won’t be deducted in the first month, but in every second month, when the net winnings become Rs. 180, the TDS will be deducted. This is in line with the purpose of the relaxation given to the deductor, as the gaming intermediary will have to deduct only when the winnings cross a certain threshold.
Now, let’s come to the third condition. If the closing balance in the wallet of the user is not enough to discharge the tax liability, the deductor will have to foot the difference amount. To continue from the previous example of Mr. X, the net winnings at the end of the financial year on 31-03-2024 are as follows:
|
Particulars |
Amount |
| Aggregate Amount Withdrawn From Wallet (A)
[Date Of Withdrawal: Rs. 50 On 18-08-2023, Rs. 90 On 21-8-2023, Rs. 90 on 10-01-2024] |
230 |
| Add closing balance | 30 |
| Less: Aggregate Of Non-taxable Deposit | 0 |
| Less: Opening Balance Of The Wallet (C) | 0 |
| Less: Net Winnings Included In First Withdrawal And Subjected To TDS (E) | 140 |
| Net Winnings [ A – (B+C+E) ] | 120 |
The net winnings of Mr. X being Rs. 120, the tax to be deducted will be Rs. 36. However, since the closing balance in the user account is only Rs. 30, the gaming intermediary will have to pay the extra difference of Rs. 6 by itself.
[1] Income-tax (Fifth) Amendment Rules, 2023 – notification effective from May 22, 2023
[2] Circular No 5 of 2023 dated May 22, 2023. The Guidelines are required to be laid before each House of Parliament and are binding on the income-tax authorities and the person liable to deduct income-tax
Author Bio
If the winner can claim the refund of TDS deducted un section 194BA if his total income is not taxable.