Section 194B of the Act provides that the person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in an amount exceeding ten thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force.
2. Section 194BB of the Act provides for similar provisions for deduction of tax at source for horse racing in any race course or for arranging for wagering or betting in any race course.
3. Section 115BB of the Act provides for the rate of 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.
4. It is seen that deductors are deducting tax under section 194B and 194BB of the Act by applying the threshold of Rs 10,000/- per transaction and avoiding tax deduction by splitting a winning into multiple transactions each below Rs 10,000/-. This is against the intention of legislature.
5. It is also seen that in recent times, there has been a rise in the users of online games. There is a need to bring in specific provisions regarding TDS and taxability of online games due to its different nature, being easily accessible vide the Internet and computer resources with a variety of playing options and payment options.
6. Accordingly, it is proposed to:––
(i) amend section 194B and 194BB of the Act to provide that deduction of tax under these sections shall be on the amount or aggregate of the amounts exceeding ten thousand rupees during the financial year;
(ii) amend section 194B of the Act to include “gambling or betting of any form or nature whatsoever” within its scope;
(iii) amend section 194B of the Act to exclude online games from the purview of the said section from the 1st day of July, 2023, since a new section 194BA is proposed to be introduced for deduction of tax at source on winnings from online games from that date;
(iv) insert a new section 194BA in the Act, with effect from 1st July 2023, to provide for deduction of tax at source on net winnings in the user account at the end of the financial year. In case there is withdrawal from user account during the financial year, the income-tax shall be deducted at the time of such withdrawal on net winnings comprised in such withdrawal. In addition, income-tax shall also be deducted on the remaining amount of net winnings in the user account at the end of the financial year. Net winnings shall be computed in the prescribed manner.
(v) to provide in the proposed section 194BA that in a case where the net winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the net winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the net winnings;
(vi) to provide that if any difficulty arises in giving effect to the provisions of new section 194BA, the Board may, with the prior approval of the Central Government, issue guidelines for the purpose of removing the difficulty. Every such guideline issued by the Board shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person responsible for deduction of income-tax on any income by way of winnings from online game;
(vii) to provide the definition of “computer resource”, “internet”, “online game”, “online gaming intermediary”, “user”, “user account” in the proposed section 194BA;
(viii) to amend section 115BB of the Act to exclude income from winnings from online games from the purview of the said section from the assessment year 2024-25, since it is proposed to introduce section 115BBJ to tax winnings from online games from that assessment year;
(ix) to insert a new section 115BBJ in the Act with regard to tax on winnings from online games to provide that where the total income of an assessee includes any income by way of winnings from any online game, the income-tax payable shall be the aggregate of—
-
- the amount of income-tax calculated on net winnings from such online games during the previous year, computed in the prescribed manner, at the rate of thirty per cent; and
- the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the net winnings referred to above;
(x) to provide the definition of “computer resource”, “internet”, “online game” in the proposed section 115BBJ.
7. The amendments proposed for section 194B and section 194BB of the Act will take effect from 1st April, 2023. The proposed section 194BA of the Act will take effect from 1st July 2023. The amendment proposed for section 115BB of the Act and the proposed section 115BBJ in the Act will take effect from 1st April, 2024 and will accordingly be applicable for the assessment year 2024-25 and subsequent assessment years.
[clauses 53, 54, 82, 83 & 84]
Extract of relevant clause of Finance Bill 2023
Clause 53 of the Bill seeks to amend section 115BB of the Income-tax Act relating to 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 whatsoever.
It is proposed to amend the said section to insert a proviso to provide that nothing contained in said section shall apply to income by way of winnings from any online game for the assessment year beginning on or after 1st April, 2024.
It is further proposed to substitute the Explanation to define the expression “horse race” and “online game”.
This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.
Clause 54 seeks to insert a new section 115BBJ in the Income-tax Act relating to tax on winnings from online games.
The proposed section seeks to provide that notwithstanding anything contained in any other provisions of this Act, where the total income of an assessee includes any income by way of winnings from any online game, the income-tax payable shall be the aggregate of—
(i) the amount of income-tax calculated on net winnings from such online games during the previous year, computed in the manner as may be provided by rules, at the rate of thirty per cent.; and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the net winnings referred to in clause (i).
It is further proposed to define the expressions “computer resource”, “internet” and “online game”.
This amendment will take effect from 1st April, 2024 and will, accordingly, apply in relation to the assessment year 2024-2025 and subsequent assessment years.
Clause 82 of the Bill seeks to amend section 194B of the Income-tax Act relating to winnings from lottery or crossword puzzle.
It is proposed to amend the said section so as to include winnings from gambling or betting of any form or nature whatsoever within the ambit of section 194B and accordingly proposed to amend the marginal heading.
It is further proposed to provide that deduction of tax under the said section shall be on the amount or aggregate of the amounts exceeding ten thousand rupees during the financial year.
These amendments will take effect from 1st April, 2023.
It is also proposed to insert a new proviso to provide that nothing contained in this section shall apply to deduction of income-tax on winnings from any online game on or after 1st July, 2023 and also an Explanation to provide that “online game” shall have the meaning assigned to it in clause (iii) of Explanation to the proposed section 115BBJ.
This amendment will take effect from 1st July, 2023.
Clause 83 of the Bill seeks to insert a new section 194BA in the Income-tax Act relating to winnings from online game.
Sub-section (1) of the proposed section provides that notwithstanding anything contained in any other provisions of this Act, any person responsible for paying to any person any income by way of winnings from any online game during the financial year shall, deduct income-tax on the net winnings in his user account, computed in the manner as may be provided by rules, at the end of the financial year at the rates in force.
The proviso to the said sub-section provides that in a case where there is a withdrawal from user account during the financial year, the income-tax shall be deducted at the time of such withdrawal on net winnings comprised in such withdrawal, as well as on the remaining amount of net winnings in the user account, computed in the manner as may be provided by rules, at the end of the financial year.
Sub-section (2) of the proposed section provides that in a case where the net winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the net winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the net winnings.
Sub-section (3) of the proposed section provides that if any difficulty arises in giving effect to the provisions of section 194BA, the Board may, with the prior approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
Sub-section (4) of the proposed section provides that every guideline issued by the Board shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person liable to deduct income-tax.
It is also proposed to define the expressions “computer resource”, “internet”, “online game”, “online gaming intermediary”, “user” and “user account”.
This amendment will take effect from 1st July, 2023.
Clause 84 of the Bill seeks to amend section 194BB of the Income-tax Act, 1961 relating to winning from horse race.
It is proposed to amend the said section so as to provide that deduction of tax under section 194BB shall be on the amount or aggregate of the amounts exceeding ten thousand rupees during the financial year.
This amendment will take effect from 1st April, 2023.
Extract of Relevant Amendment Proposed by Finance Bill, 2023
53. Amendment of section 115BB.
In section 115BB of the Income-tax Act, for the Explanation, the following shall be substituted with effect from the 1st day of April, 2024, namely:–
‘Provided that nothing contained in this section shall apply to income by way of winnings from any online game for the assessment year beginning on or after the 1st day of April, 2024.
Explanation.—For the purposes of this section,–
(i) “horse race” shall have the meaning assigned to it in section 74A;
(ii) “online game” shall have the meaning assigned to it in section 115BBJ.’.
54. Insertion of new section 115BBJ.
After section 115BBI of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2024, namely:–
Tax on winnings from online games.
‘115BBJ. Notwithstanding anything contained in any other provisions of this Act, where the total income of an assessee includes any income by way of winnings from any online game, the income-tax payable shall be the aggregate of—
(i) the amount of income-tax calculated on net winnings from such online games during the previous year, computed in the manner as may be prescribed, at the rate of thirty per cent.; and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the net winnings referred to in clause (i).
Explanation.—For the purposes of this section,–
(i) “computer resource” shall have the same meaning as assigned to it in clause (e) of the Explanation to section 144B;
(ii) “internet” means the combination of computer facilities and electromagnetic transmission media, and related equipment and software, comprising the interconnected worldwide network of computer networks that transmits information based on a protocol for controlling such transmission;
(iii) “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.’.
82. Amendment of section 194B.
In section 194B of the Income-tax Act, –
(i) for the marginal heading, the following marginal heading shall be substituted, namely:–
“Winnings from lottery or crossword puzzle, etc.”;
(ii) for the words “in an amount exceeding ten thousand rupees”, the words “or from gambling or betting of any form or nature whatsoever, being the amount or the aggregate of amounts exceeding ten thousand rupees during the financial year” shall be substituted;
(iii) after the proviso, the following shall be inserted with effect from the 1st day of July, 2023, namely:–
‘Provided further that nothing contained in this section shall apply to deduction of income-tax on winnings from any online game on or after the 1st day of July, 2023.
Explanation.—For the purposes of this section, “online game” shall have the meaning assigned to it in clause (iii) of the Explanation to section 115BBJ.’.
83. Insertion of new section 194BA.
After section 194B of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July, 2023, namely:–
Winnings from online games.
‘194BA. (1) Notwithstanding anything contained in any other provisions of this Act, any person responsible for paying to any person any income by way of winnings from any online game during the financial year shall deduct income-tax on the net winnings in his user account, computed in the manner as may be prescribed, at the end of the financial year at the rates in force:
Provided that in a case where there is a withdrawal from user account during the financial year, the income-tax shall be deducted at the time of such withdrawal on the net winnings comprised in such withdrawal, as well as on the remaining amount of net winnings in the user account, computed in the manner as may be prescribed, at the end of the financial year.
(2) In a case where the net winnings are wholly in kind or partly in cash, and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the net winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the net winnings.
(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purposes of removing the difficulty.
(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the person liable to deduct income-tax.
Explanation.– For the purposes of this section–
(a) “computer resource”, “internet” and “online game” shall have the meanings respectively assigned to them in section 115BBJ;
(b) “online gaming intermediary” means an intermediary that offers one or more online games;
(c) “user” means any person who accesses or avails any computer resource of an online gaming intermediary;
(d) “user account” means account of a user registered with an online gaming intermediary.’.
84. Amendment of section 194BB.
In section 194BB of the Income-tax Act, for the words “in an amount exceeding ten thousand rupees”, the words “, being the amount or aggregate of amounts exceeding ten thousand rupees during the financial year,” shall be substituted.
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