Lakshmikumaran & Sridharan (LKS), a leading full-service Indian law practise with a focus on taxation, reviewed the planned TDS adjustments made for the online gaming industry in the Union Budget 2023. The white paper applauds the government’s initiative to clarify direct gaming taxes while highlighting potential issues, their effects on consumers and the sector, and offering options to address them. Up until this point, the online gambling business had deducted TDS at a rate of 30% on profits under section 194B, which had a threshold of INR 10,000 per game. The Finance Minister approved a distinct new section 194BA for TDS on online gaming in the Union Budget 2023. The online gaming operators are required to deduct 30% TDS from net winnings under the new clause. The method for calculating “net winnings” must be specified separately.
Although the industry has welcomed this change, it has also presented a problem. This is due to the fact that the existing section 194B is being changed, and while the changes to section 194B take effect on April 1, 2023, the new section 194BA does not until July 1, 2023. This basically means that the online gaming business will have to comply with the updated 194B and undergo two major compliance framework adjustments within three months, from April 1 to June 30th, 2023. Users may get quite confused as a result, and the industry may face significant compliance difficulties.
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REGIME |
TIMELINE |
| Current – Has a threshold of Rs 10,000 on per game basis for tax deduction on winnings | Ends March 31, 2023 |
| New – The threshold is removed and TDS calculations to be done on net winnings in the financial year | Effective from July 1, 2023 |
| Interim – Has the threshold of Rs 10,000 on financial year basis for tax deduction on winnings | Effective from April 1, 2023-June 30, 2023 |
Commenting on the report, L Badri Narayanan, Executive Partner, LKS, said, “While the new proposed TDS changes bring in the much needed recognition for online gaming, the compliance complexities do pose a challenge. The application of two different tax deduction changes within the same financial year may result in massive confusion for players who may inadvertently not be able to comply or end up losing money. It may also lead to a mismatch between the winnings reported by OGIs and actual taxable net winnings of the users. Additionally, it would require significant education of the 20+ crore online gaming players, which would be an arduous task.” He added, “Historically, when such changes are carried out, only one regime change is prescribed to allow for sufficient time to implement. The Government should ideally conduct industry consultations to understand their concerns and notify the rules accordingly.”
The whitepaper suggests that, for a smooth transition, threshold adjustments to Section 194B should go into effect on July 1, 2023, as has been the pattern for past amendments, as a response to these likely concerns. Also, it is essential that users’ tax return filing procedures continue to run smoothly towards the conclusion of the fiscal year. The report also suggests a few guidelines that might be used to determine how to calculate net winnings, reflecting the purpose of proposing these revisions. If all the issues are dealt with holistically, both the government and the industry may gain from this emerging sector. India has established itself as a pioneer in the online gaming sector, bringing in more than INR 22,000 crore for the government coffers. The industry is expected to grow at a 38% compound annual growth rate (CAGR), which has the ability to support the “Made in India” and “Brand India” visions.
