The government has decided to make the tax deducted at source (TDS) on winnings from online games applicable from April 1, instead of July 1 — a move that gaming companies have welcomed, saying it would reduce compliance burdens and potential tax disputes.

“It would have been problematic if the TDS would have been applicable from July as the financial year starts from April 1 and the period from April-June would have been an exposure, and even potentially open to dispute with tax authorities,” Saumya Singh, CEO of online gaming platform WinZO, said.

The changes have been introduced in the amendments to the Finance Bill passed in Parliament on Friday.

Companies are now awaiting the guidelines on TDS for winnings on online games from the Central Board of Direct Taxes (CBDT).

A top executive at a fantasy sports gaming platform said initially the government had set the July deadline for TDS applicability so that companies get enough time to comply, but the presence of two different taxation systems in a single financial year would have led to compliance problems and potential tax disputes.

“If there’s a different taxation regime for the first three months of the fiscal, and a different one for the remaining nine months, it creates compliance burdens for the companies as well as the consumers,” the executive said. It would have been difficult for companies to change their systems to comply with two different tax regimes in the same year, the person said.

“Also, not all players on the platform decide to withdraw their winnings immediately. They wait for the winnings to accumulate to a certain level before they withdraw. To this extent, clear guidelines will be important on how to levy the tax,” the executive said.

In the Union budget for 2023-24, the government introduced two new sections in the Finance Bill and amended one section of the Income Tax Act to separate online gaming platforms from gambling and betting activities.

The government introduced Sections 194BA and 115BBJ to tax income that users earn by winning on gaming platforms. Section 194BA deals with TDS while Section 115BBJ prescribes the tax rate on the winnings from online games.

Many CEOs thanked the government for responding to concerns raised by the industry.

“These progressive steps reflect the government’s commitment towards a thriving sunrise sector by keeping illegal offshore companies at bay, promote responsible gaming practices and build a sustainable future for the industry in India,” said Rahul Tewari, chief financial officer of Games24x7.

Roland Landers, CEO of All India Gaming Federation (AIGF), said, “While we await CBDT’s clarifications and guidelines in this regard, we are hopeful that the certainty in taxation offered by the budget announcement will be a huge stimulus for the growth of the online gaming industry.”

AIGF represents gaming platforms including Mobile Premier League (MPL), Rupee, Paytm First Games and Ashneer Grover’s new fantasy cricket app Crickpe.

Malay Kumar Shukla, secretary of E-Gaming Federation (EGF), which has members like Games24x7 and Junglee Games, said the move will “eliminate the significant operational difficulties and inconvenience for online gaming operators as well as over 200 million gamers in the country”.

The online gaming industry has also been awaiting a decision on the applicability of the goods and services tax (GST). While the companies in the online skill-based gaming sector are on board with 28% tax rate being applicable, they have urged that the tax be levied only on gross-gaming revenue (GGR), and not on the contest entry amount.

GGR is the fee charged by an online skill gaming platform as service charges to facilitate the participation of players in a game on their platform whereas contest entry amount is the entire amount deposited by the player to enter a particular contest on the platform. The decision over GST on online gaming is to be taken by the GST Council.

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