Last updated on February 6th, 2023 at 12:13 pm
Tax on winnings from online games
In the Union Budget 2023, Government has decided to levy income tax on winning from online games. A special rate similar to winning from lotteries and horse races has been introduced. To make sure that tax is realized, the responsibility of deducting tax has been put on the service provider of online games.
Section 115BBJ will be effective from 1st April 2024.
Section 194BA will be effective from 1st July 2023.
Defined in clause (iii) of the Explanation to section 115BBJ
“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.”
What is the income tax rate on winning from online games?
As per newly inserted section 115BBJ of the Income Tax Act,1961,
Winning from online games will be taxable at the rate of 30% plus applicable surcharge and education cess. It will be shown as “Income from Other Sources.”
Note: Section 115BBJ will be effective from 1st April 2024. (From FY 23-24 onwards)
Who will deduct tax at source on winnings from online games?
As per newly inserted section 194BA of the Income Tax Act,1961,
Any person(Online Games Platform) who is responsible to pay any person for winnings from any online games will have to deduct tax at source on net winnings during the financial year.
- TDS shall be deducted u/s 194BA w.e.f. 1st July 2023
- TDS shall be deducted u/s 194B up to 30th June 2023.
What is the threshold limit for TDS u/s 194BA?
The benefit of the threshold limit will not be given in case of winnings from online games. Tax will be deducted for any income derived from online games.
At what rate tax will be deducted u/s 194BA?
Tax will be deducted @30% u/s 194BA.
When will the TDS u/s 194BA be deducted?
TDS u/s 194BA is to be deducted from the net winnings at the end of the financial year.
Note: In case the person withdraws any amount during the year then TDS to the extent of withdrawal should be deducted at the time of withdrawal.
How TDS will be deducted if the winnings are not wholly in cash?
The person responsible for paying the person for winnings shall be responsible to ensure that tax is deducted before the release of net winnings which are not wholly in cash. Such scenarios are likely when the winnings are wholly in kind or partly in kind and partly in cash or cash is not sufficient to meet the TDS liability.
Can you claim a rebate u/s 87A from income derived from online games?
NO. Rebate under section 87A is not available for income derived from online games. (Refer-Provisions of Rebate)
Can you avail deduction under Chapter VI-A from income derived from online games?
NO. Deduction under Chapter VI-A will not be available for income derived from online games.
Can you avail the benefit of the basic exemption limit or slab rates for income derived from online games?
NO. The basic exemption limit and slab rate benefit are not available for income derived from online games as it is taxed at a special rate of 30%.
Will provisions of advance tax be applicable for winning from online games?
If your estimated tax liability exceeds Rs 10,000/- provisions of advance tax shall be applicable for the above income too. (Refer- Provisions of Advance Tax)
Amendment in Section 115BB
There is a specific exclusion that tax should not be levied on winnings from online games u/s 115BB as it will be covered u/s 115BBJ. (Effective from 1st April 2023)
Amendment in Section 194B
There is a specific exclusion that states tax shall not be deducted on winnings from online games u/s 194B as it will be covered u/s 194BA. (Effective from 1st July 2023)
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