Online gaming bonus, incentives taxable on withdrawal, clarifies CBDT

The CBDT rule says in case where user borrows the money and deposit in his user account, it shall be considered as non-taxable deposit.

Any bonus or incentive below Rs 100 credited to an online gamer's account will be exempt from TDS but will be taxed at the time of withdrawal, tax watchdog Central Board of Direct Taxes (CBDT) has said.

The CBDT has said that any bonus or incentive credited to a user account will be considered net winnings and online gaming platforms need not deduct tax at source (TDS) on winnings withdrawn by players if the amount is below Rs 100 a month and meets certain conditions. If these are used only for playing, then it’s not liable for TDS, the CBDT clarified in a set of guidelines issued on May 22.

The new rule mandates 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, it said.

Tax is required to be deducted at the time of withdrawal as well as at the end of the financial year.

Notably, the new rules give a viable solution to manage many gamers who play with very small amount and also withdraw very insignificant amount, which could make TDS a huge compliance burden for the online gaming company.

The guidelines mentioned that some deposits could be money equivalent too like coins, coupons, vouchers, counters and so on. In such a situation, the equivalence in money of such deposit shall be considered as taxable deposit and would accordingly form part of balance in user account.

Further, it said in case where user borrows the money and deposit in his user account, it shall be considered as non-taxable deposit.

"The circular keeps the threshold limit for TDS or withholding tax at a sum of Rs 100 of net winnings arguably to keep a bigger monitor on unaccounted money flowing into this sector and keep a real-time vigil," PTI quoted Nangia Andersen LLP Tax Leader Aravind Srivatsan as saying.