Union Budget 2023-24: Govt To Clarify Online Gaming Taxation
The TDS threshold for online gaming has been removed from Rs 10,000 to nil in Budget 2023.
Overview:
- The announcement comes as the online gaming industry has been marred by taxation uncertainty.
- The authorities have also notified several online gaming startups for alleged miscategorisation.
- An 18% tax is being levied on the commission collected by online gaming platforms for games not involving betting or gambling.
Finance Minister Nirmala Sitharaman said during her address for the Union Budget 2023-24 that the government would provide clarification on how the taxes structure for online gaming will function. "Major initiatives to ease the tax burden include clarifying taxability connected to online gaming, not recognising conversion of gold into electronic gold receipts as capital gains, and more," Sitharaman said.
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The finance minister requested that online gambling firms include TDS and taxation on net wins when withdrawn or after the fiscal year. She also recommended eliminating the INR 10,000 TDS threshold on online gaming. "The threshold limit of INR 10,000 for TDS on lottery, crossword puzzles, and other games will persist but shall apply to aggregate wins within a fiscal year," Sitharaman noted.
Budget notices of Online Gaming 2023
The decision comes at a time when the online gaming business has been plagued by tax uncertainty and a lack of clarity on several issues, including the amount of tax to be imposed and what constitutes taxable revenue. However, the largest sticking point in the dispute over whether these games are games of skill or chance persists. The GST and taxes authorities have also sent notifications to other online gambling businesses for suspected miscategorisation. The Directorate General of GST Intelligence (DGGI) recently sent a notice to the online gaming firm MyTeam11, but the Rajasthan High Court kept the notification.
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Another comparable firm, GamesKraft, has not been as fortunate. The DGGI notified GamesKraft in September of a tax obligation of INR 21,000 Cr. The issue is still being heard in the Karnataka High Court, where the gambling corporation requests a stay of the notice. The government informed Parliament during the Winter Session in December 2022 that the Central Board of Indirect Taxes and Customs (CBIC) is investigating gaming enterprises for suspected GST evasion of almost INR 23,000 Cr.
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The government has yet to settle on the sector's taxes rate. For the time being, an 18% tax is charged on the commission earned by online gaming platforms for games that do not include betting or gambling, while the tax on contest entry fees is nil. The GST Council has suggested that the inter-ministerial body led by Meghalaya Chief Minister Conrad Sangma impose 28% GST. The government is also strengthening the Tax Deduction at Sources (TDS) rules, and online gambling gains may face more tax scrutiny.
It is worth noting that the government has been expanding its attention on the industry in recent years. Sitharaman announced the development of an Animation, Visual Effects, Gaming, and Comic (AVGC) task force in her Budget address last year, which was subsequently formed in April 2022 under the auspices of the Ministry of Information and Broadcasting (MIB). The task group delivered its findings in December 2022, advocating major reforms to build an industrial strategy. The task group advocated in a report the establishment of a national AVGC Mission with a specific budget to promote the industry.
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Until next time,
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