Earnings from online gaming will now be taxed at source, the union budget which was announced on Wednesday stated outlining the government’s stand on taxing the space for the first time.
“For online games, it is proposed to provide for TDS (tax deducted at source) and taxability on net winnings at the time of withdrawal or at the end of the financial year. Moreover, TDS would be without the threshold of ₹10,000,” the budget document stated.
“For lottery, crossword puzzles, games, among others, threshold limit ₹10,000 for TDS shall continue but will apply to aggregate winnings during a financial year.”
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Last month, the ministry of electronics and information technology had proposed to bring online gaming platforms under the ambit of the intermediary guidelines, introducing compliance requirements, user verification and a grievance redressal mechanism, formalising a structure that has been in the works for several months since the government set up an inter-ministerial task force to regulate the sector.
In the proposed amendments to the guidelines uploaded on the ministry’s website, the government introduced a new definition which classifies online games as “a game that is offered on the internet and is accessible by a user through a computer resource if he makes a deposit with the expectation of earning winnings”, with an online gaming intermediary referring to a platform that offers multiple such games.
The rules go on to define ‘deposit’, as a deposit made or committed to, in cash or in kind, by the user for participating in an online game, while ‘winnings’ means any prize, in cash or in kind, that is distributed or intended to be distributed to a user of an online game based on the performance of the user and in accordance with the rules of such online game.
To be sure, the proposed amendments limit online gaming to extent that it falls within the purview of the current laws of the country, including those dealing with gambling and betting for which different states have different laws. Intermediaries are not allowed to host games that are is not in conformity with any law for the time being in force in India, “including any such law relating to gambling or betting or the age at which an individual is competent to enter into a contract”.
Moreover, the online gaming intermediary has to, “at the time of commencement of a user account-based relationship for an online game, identify the user and verify his identity”.
The procedure required to be followed for verification has to be similar to that of an entity regulated by the Reserve Bank of India (RBI), under directions issued by it for identification and verification of a customer at the commencement of an account-based relationship, the rules add.
“The online gaming intermediary shall enable users who register for their services from India, or use their services in India, to voluntarily verify their accounts by using any appropriate mechanism, including the active Indian mobile number of such users, and where any user voluntarily verifies their account, such user shall be provided with a demonstrable and visible mark of verification, which shall be visible to all users of the service,” the draft mentioned, adding that the information received for the purpose of verification under this clause shall not be used for any other purpose, unless the user has expressly consented to such use.
