Online Gaming: Proposed Changes In Tax Law

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The Finance Bill 2023, tabled on 1st February 2023, has proposed several changes to the tax regime applicable to online gaming - both for the users as well as the gaming companies.
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The Finance Bill 2023, tabled on 1st February 2023, has proposed several changes to the tax regime applicable to online gaming - both for the users as well as the gaming companies. The erstwhile provisions in the law (sections 115BB and 194B of the Income-tax Act, 1961) have been replaced by new sections (sections 115BBJ and 194BA). The new provisions now require the user to pay income-tax @ 30% on their income from winnings from online gaming. The gaming companies are also required to deduct tax @ 30% at the time of withdrawal by the user as well as at the end of the financial year. The threshold limit of Rs. 10,000 has been done away with and even on smaller amounts now, tax deduction would have to be done by the gaming companies.

I. The old law [effective till 31st March 2023]

  • User would pay income tax on winnings from any game @ 30%, while filing his tax return
  • Gaming companies would deduct tax (TDS) on winnings from any game in an amount exceeding Rs. 10,000


  • Winnings not defined (whether net or gross, or when do they crystallize)
  • Game not defined (what about tournaments, or multiple wallets)
  • To what does the threshold of Rs. 10,000 apply (to a financial year or a month, or to each withdrawal, or each at the end of each game)
  • Income from gambling and betting was taxable in the hands of the user, but there was no corresponding TDS provision (probably because these activities are largely illegal)

II. The interim law [from 1st April to 30th June 2023]

  • TDS shall be made on winnings from any game where the amount of winnings or the aggregate of amount exceeds Rs 10,000 during the FY.
  • The gaming companies shall have to modify their systems from deducting tax if each winning/payment is more than Rs 10,000, to deducting tax even if the aggregate of such winnings/payments is more than Rs 10,000.
  • We'll have to live with the lack of clarity in the definition of "winnings" and "game".
  • TDS also now required on payments related to gambling and betting.

Why is this interim?

  • The new substantive section (s. 115BBJ) comes into force from 1st April 2023 itself. Thus, the user shall have to file his tax return for the next year as per the amended law itself.
  • However, the new TDS provision (s. 194BA) will be effective from 1st July. Till then, the old TDS provision (s. 194B) would be effective. Now, s. 194B has also been amended effective from Apr 1 as explained above.

III. The new law [effective from 1st July 2023]

  • TDS to be made on net winnings in the user account at the end of the financial year
  • In case the user withdraws any amount during the financial year, TDS required to be made:
  • on the net winnings comprised in such withdrawal, at the time of withdrawal, and
  • on the remaining amount of net winnings in the user account, at the end of the FY.
  • In other words: TDS to be made at the time of each withdrawal, as well as at the end of the financial year.


  • On 10th August, a user transfers Rs. 1000 to the app.
  • He plays several games on the app, has a lucky streak, and his account swells to Rs. 12,000.
  • On 15th January, he withdraws Rs. 11,000 into his bank account.


  • Tax needs to be deducted on 15th January on the net winnings inside the Rs. 11,000 amount (as per Rules to be prescribed)
  • Tax needs to be deducted on 31st March on the net winnings inside the Rs. 1,000 amount.

IV. Analysis

(a) Winnings vs. Net winnings

The use of different terms 'winnings', 'net winnings', 'net winnings comprised in such withdrawal' etc., makes it clear that the law does not contemplate to levy TDS on the amount put in by the user for playing the game, rather only on the net amount. This is a welcome clarification.

(b) Single-user vs. Multi-user games

TDS provision not clear, because in case of single-user games, the gaming company may not be treated as an intermediary. The definition of online gaming intermediary is the same as the definition of the term in the recently published draft amendment to IT Rules related to online gaming, that is still pending for public consultation.

(c) Definition of 'online game'

The definition of 'online game' refers to the term 'game' which has, yet again, not been defined. Thus, the lack of clarity on this definition is continued. When does the game start and end is relevant, because that's when the winnings get crystallized.

(d) Multiple user wallets

In cases where the gaming platform has multiple user wallets, the confusion continues regarding when do the winnings crystalize and when does the game end (and what is the significance of user shifting monies between the wallets).

Wait n watch: Rules and Guidelines are still on the way! The amendments empower the Board to issue Rules laying down the computation of 'net winnings', and also Guidelines for the purpose of removing any difficulties in relation to the amendments. These are yet to be notified.

Finance Bill 2023 - Online Gaming.pdf Download PDF " 164KB

February 2, 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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