TaxTMI 
TaxTMI 
30 May 2023
The battle for taxability of online gaming under GST may have been initially won by taxpayers in the Delhi High Court against the DGGI; however online gaming business remains on the radar of CBIC as well as the CBDT; And the CBDT seems to be in a haste. Rule 133 vide notification 28/2023 is published only on 22nd May 2023, while the Section 194BA and Section 115BBJ had already come in force for taxation of online gaming, from 1st April 2023 itself. The new TDS u/s 194BA mandates that a person, who is responsible for paying to any other person any income by way of winnings from any online game during the financial year, must deduct income tax on net winnings in the person's user account. Tax is required to be deducted at the time of withdrawal as well as at the end of the financial year.
Important to note is that any deposit in the form of bonus or incentives credited in a user account will be considered ‘net winnings’, and subject to tax deduction, in case of withdrawal. Some deposits could be money equivalent like coins, coupons, vouchers which will also be considered a taxable deposit. The valuation would be based on fair-market value of the winnings in kind except in cases where the online game intermediary has purchased the winnings before providing it to the user. In that case, the purchase price will be the value of winnings. GST will not be included for the purposes of valuation of winnings for TDS under Section 194BA of the Act.
However, If the deposits are used only for playing and cannot be withdrawn, then it’s not liable for TDS u/s 194BA. Further, in case the user borrows the money and deposits it in his user account, it will be considered a non-taxable deposit.
The calculation of net winnings is illustrated as under – Net winnings for the purposes of calculating tax required to be deducted under Section 194BA shall be calculated as under Net winnings =A-(B+C), where A = Amount withdrawn from the user account; B = Aggregate amount of non-taxable deposit made in the user account by the owner of such account during the financial year, till the time of such withdrawal; and C = Opening balance of the user account at the beginning of the financial year;
Important to note is that user account shall include every account of the user, by whatever name called, which is registered with the online gaming intermediary and where any taxable deposit, nontaxable deposit or winnings of the user is credited and withdrawal by the user is debited.
Thus, each wallet which qualifies as a user account shall be considered as a user account for the purposes of computing net winnings. GST will not be included for the purposes of valuation of winnings for TDS under Section 194BA of the Act. The deposit, withdrawal or balance in the user account will mean aggregate of deposits, withdrawals, or balances in all user accounts. Important to note also is that the TDS also extends to cases where the balance in the user account at the time of tax deduction is not sufficient to discharge the tax deduction.
The online gamer in such case has to first collect the amount for TDS, then pay TDS and only then release the new wining in cash and kind. The threshold for non-deduction has been however set as an insignificant amount of Rs 100 a month. Hence, in case net winnings do not exceed a meagre Rs 100 a month, the applicable tax need not be deducted, otherwise it will need to be deducted.