The online gaming industry is rising rapidly in India as many people invest in companies that offer online gaming services. The wide use of cell phones and laptops is resulting in the growing popularity of online gaming.
Anyone can access gaming portals right at their fingertips, which makes it easier to play online games regularly. With the introduction of money-making gaming apps, people are putting their interest in investing in these games.
Making money on online gaming portals is easy, but do you know the tax rate on online gaming in India? Let’s find out!
Section 115BBJ of the Income Tax Act, 1961
Online gaming is taxable in India under the Income Tax Act, of 1961. Section 115BBJ of the Income Tax Act 1961 states that:
- Winnings from any online game shall be charged at a tax rate of 30% under Section 115BBJ of the Income Tax Act. 1961.
- This will exclude surcharge and Cess.
- Any income from online games from 1st April 2023 shall be taxable under this section.
- Previously, the threshold for tax deduction was ₹10,000. The amendment that came into effect on 1st April 2023, states the winning amount that exceeds ₹100 is taxable. The tax calculated will be on the amount that equals the difference between the winning amount and the amount deposited at the time of joining.
However, the E-gaming Federation. All India Gaming Federation and Federation of Indian Fantasy Sports have approached the government to reconsider the changes in TDS, which is effective from 1st April 2023.
- Section 194BA is also introduced to amend the tax rate on the winning amount on different gaming apps. According to this section, 30% TDS will be applied to the total earnings in the user’s gaming account at the end of the fiscal year.
- The total net winning will be calculated as the difference between the total amount withdrawn and the sum of the deposited amount in the account by the user and the opening balance of the user at the start of the fiscal year.
Though online gaming is taxable, it gains profits for a legitimate gamer. Those who are looking to make money with color prediction games can Discover Tiranga Gaming app.
This app features special games and is very reliable and popular among online gamers.
So, let us understand with a simple example, the theory of tax deduction and the net winning from an online game after the deduction of tax.
Let’s simplify the tax rate:
To calculate the tax on online gaming in India, we must understand the taxable amount of the user account first. If you have deposited ₹1,000 at the time of registration on an online gaming app and won ₹20,000, the gaming firm will deduct tax on ₹19,000, i.e. (20,000-1,000).
The tax deduction will be at 30%. So, the cost of the tax will be ₹5,700. So, the net winning of that user account will be (19,000-5,700); i.e. ₹13,300.
Distribution during Gaming Tournaments
As per the income tax law, winnings from different gaming tournaments in the form of gift prizes or cash are also considered winnings and thus are taxed at 30%. These earnings are termed as ‘income from other sources.
Taxable Referral and Joining Bonuses
If you have received any referral and joining bonuses that can be withdrawn, then it is considered taxable winnings for that particular year. This will be added to the total earnings from the online game and also taxed at 30% during withdrawal.
NO deduction is charged for any expenditure related to income received from crossword puzzles, card games, races, and other games of any nature.
The bottom line:
The rising popularity of online games is taking the gaming world to a different level altogether. Hence, the gaming industry has asked the government to make changes in tax rates and the threshold limit. So, the tax deduction on online gaming is mandatory irrespective of the winning amount.