CBDT: Online gaming bonus, incentives taxable if withdrawn

Online Gaming Gambling Law Insider

LI Network

Published on: 23 May 2023 at 12:47 IST

The Central Board of Direct Taxes (CBDT) has provided clarification on the tax treatment of deposits, bonuses, and incentives in user accounts related to online gaming.

According to the CBDT, any deposit in the form of bonuses or incentives credited to a user account will be considered as net winnings and subject to tax deduction upon withdrawal. However, if these credits are solely used for playing and not withdrawn, they are not liable for tax deduction at source (TDS).

If the net winnings do not exceed ₹100 per month, no tax deduction is required. This applies even if the balance in the user account at the time of tax deduction is insufficient to cover the tax deduction.

These guidelines are in accordance with the new TDS rules on online gaming, which became effective from April 1. The rules state that any person responsible for paying winnings from online games must deduct income tax on the net winnings in the user account.

The CBDT also clarified that certain deposits, such as money equivalent coins, coupons, or vouchers, will be considered taxable deposits. The valuation of these deposits will be based on the fair market value of the winnings in kind, unless the online gaming intermediary has purchased the winnings before providing them to the user, in which case the purchase price will be considered the value of the winnings.

The CBDT further explained that if a user borrows money and deposits it into their user account, it will be considered a non-taxable deposit. In cases where a user has multiple accounts, all accounts registered with the online gaming intermediary will be considered for computing net winnings. The deposit, withdrawal, or balance in the user account will be the aggregate of all deposits, withdrawals, or balances across all user accounts.

The CBDT clarified that Goods and Services Tax (GST) will not be included in the valuation of winnings for TDS purposes under Section 194BA of the Income Tax Act. Previously, until March 31, 2023, TDS on winnings from online games was applicable if the winnings exceeded ₹10,000 in a financial year. The rate of TDS on winnings from online games is set at 30%, and tax is required to be deducted at the time of withdrawal as well as at the end of the financial year.

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