E-GAMING Income TAX – IT Deparment E-Gamers NOTICES: The income tax department is getting tough on E-GAMING Community. The IT Department has served TAX notices to at least 10,000 gamers and more than 20 E-GAMING & Fantasy companies. According to a report by TOI, the notices were served in November and deparmtnet has seeked payments & levied penalties in the notices: Follow ESPORT & Fantasy Industry NEWS Updates with InsideSport.IN
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E-GAMING Income TAX: E-GAMERS in FIX, Income Tax Department serves notices to more than 10,000 GAMERS & 20 E-Gaming Companies: Follow LIVE Updates
Why IT Deparment has served notices? The notices according to the report were served a few months ago. The notices are served to the gamers who have received payouts of over Rs 10,000.
According to the IT LAWS, Tax should be deducted at SOURCES for such payments.
The department has tracked these ‘DEFAULTERS’. The GAMERS who have been served notices are yet to respond to the department.
According to estimates of Central Board of Direct Taxes (CBDT) chairman Nitin Gupta the players associated with these companies had netted Rs 58,000 crore over three years through 2021-22 as gross winning amount.
Currently Income tax laws: Winnings from online games are taxed at 30%. If the winnings are above Rs 10,000, the gaming company must deduct tax on it. Section 194B of the Income Tax Act, 1961, has mandated that the person responsible for making payments to any person for income by way of winnings from lotteries or crossword puzzles will have to deduct tax at the applicable rate.
What the New Tax Regime says? The Budget recently has signalled a shift in the tax regime. It was proposed in the BUDGET that Rs 10,000 floor for TDS will be removed. Though the winnings will be TAXED at 30%. This means TDS will be calculated at the end of the year or whenever the money is withdrawn from the wallet used to play on the online platform.
E-GAMING vs TAX Authorities: On September 8, the GST Intelligence issued a Rs 21,000-crore tax notice against Bengaluru-based Gameskraft Technology on charges of evasion
The union government according to reports has identified about 12 companies on Goods and Services Tax (GST) evasion charges, a senior government official recently was quoted by Outlook Business.
“The process of finalizing the names is on. There are about 10-12 such gaming platforms that would be investigated on the grounds of generating false invoices to evade paying GST. Tax notices would be sent out once the process is completed. There are many such companies that have come to the notice of the department on the grounds of tax evasion,” the official said.
A large number of individuals participate in fantasy leagues, card games, online challenges etc., which involve actual money. The withholding tax on such winnings has been so far governed by section 194B of the Income tax Act (“the Act”) which provided for withholding tax on winnings from lottery or crossword puzzles, including card games and other game of any sort. TDS was only applicable in cases where the winnings exceeded Rs 10,000. Also, the taxation of such winnings in the hands of individual players were governed by section 115BB of the Act which provided a tax rate of 30 per cent.
However, there were various open questions relating to withholding tax on online game winnings such as:
(i) interpretation of the term “game” (eg. each match or tournament or aggregate of games in a financial year); (ii) interpretation of the term “payment” – as to whether constructive payments would be covered (e.g. credit to wallets) (iii) whether TDS under section 194B is applicable on gross winnings or net winnings. As there was no specific clarification, different positions were adopted by entities in the industry.
Considering the large volume of revenue being generated from winnings of online games, the rise in users of such games, variety of playing options and payment options, it was expected that the government may provide clarifications on applicability of TDS and taxation of winnings from online games.
In line with the expectation, Finance Bill 2023 has proposed a separate tax code applicable to online gaming. The Finance Bill 2023 has inserted provisions of withholding tax (section 194BA) and income tax on winnings from online games (section 115BBJ).
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