Uncovering Unexplored Dimensions: A 2024 Perspective on the Landscape of Online Gaming in India

The Indian gaming market saw a significant surge, reaching $2.6 billion in FY22, and is anticipated to escalate to $8.6 billion by FY27 (Source: www.lumikai.com). This surge is coupled with a notable increase in online gaming participation, drawing in a growing number of individuals to a realm that was previously relatively untapped

We've witnessed a notable shift in attention from the Revenue (Tax Department) towards the domain of online gaming. More and more participants are not only viewing online gaming as a source of entertainment but also as a viable economic avenue for income generation and business prospects, indicating a thriving sector with considerable economic promise. Consequently, the Revenue is contemplating changes in taxation policies to bring online gaming under the tax purview.

Now the fundamental question arises here: Should income from gaming activities, whether conducted online or offline, be regarded as taxable income under the Income Tax Act, of 1961?

The answer to this question lies within Section 2(24) of the Act, which defines 'income' inclusively as follows:

As per clause (ix) of Section 2(24), income is to include 'winnings from lotteries, crossword puzzles, card game and other game of any sort', or from gambling or betting of any form or nature whatsoever.

Therefore, Income from such activities is clearly regarded as taxable income for a person. Therefore, winnings from online games also fall under the 'Income from Other Sources' (IFOS) category.

The term "any other games" should be interpreted broadly and may encompass income from online gaming. Consequently, winnings from such games fall within the scope of 'income.' The definition does not differentiate between offline and online gaming. Therefore, income derived from online gaming is also to be included within the definition of income under Section 2(24)(ix) of the Act and fall under the head 'Income from Other Sources' (IFOS).

Further, the winning from lottery, horse races, card games, and other games of any sort, etc. are classified under the head "Income from Other Sources" and are covered under Section 56(2) of the Act.

Given that the article specifically addresses the tax implications of 'Online Games,' we will focus our discussion explicitly on this subject."

Overview of Income-tax w.r.t. Online Gaming Income

Before addressing the taxation aspect of Online Gaming, let's first try to understand the precise nature of Online Gaming.

"Online game" is a game available on the internet that users can play using a computer or any device that can connect to the internet, like an iPad, tablet, mobile phone, or similar telecommunication devices

However, where the game is made available through offline channels like through CD, DVD's, or USB's, it cannot be said to be offered through the internet. Similarly, games played at game zones or game parlours, without the requirement of internet or telecommunication service or device, is not online games.

Taxability of Online Gaming Income

The winnings from online and offline games/contests/others till March 31, 2023, would be taxable at 30% under section 115BB.Until the financial year 2022-23, there was no difference in how winnings from offline and online games were taxed. The Finance Bill, 2023 has proposed a new provision for the taxation of income by way of net winnings from "online games" at the rate of 30% w.e.f. Fiscal Year (FY) 2023-24 under Section 115BBJ (w.e.f. AY 2024-25). A corresponding section 194BA is also there for the deduction of tax from the net winnings from the online games.

Section 115BBJ as proposed in the Finance Bill, 2023 reads as under:

Sec 115BBJ provides that where the total income of an assessee includes any income by way of winnings from any online game, the income-tax payable shall be the aggregate of-

- the amount of income-tax calculated on net winnings from such online games during the previous year, computed in the prescribed manner, at the rate of thirty percent; and

- the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the net winnings referred to above;

In other words, Net winnings from any online game shall be taxed under this section of the Income Tax Act, 1961. The applicable tax rate on such income is 30%, exclusive of surcharge and cess. This section has been in effect since April 1, 2023, meaning any income from online games (whether games of chance or skill) earned from this date onward is taxable under this section

Accordingly, Rule 133 of the Income Tax Rules, 1962 has been notified for calculation of net winnings for the purpose of sections 115BBJ and 194BA of the Act. Further, the meaning of net winnings for section 115BBj is different from the meaning assigned for the purpose of section 194BA of the Act.

For example: 

TDS on Winnings from Online Gaming Section 194BA provides for deduction of TDS by Any person responsible for paying to any person any income by way of winnings from any online game during the financial year shall deduct income-tax on the net winnings in his user account under the said section of Income Tax Act, 196.1The applicable rate of Tax Deducted at Source (TDS) shall be 30% at the time of withdrawal of the winning amount, without any minimum threshold.

Any Person" refers to the individual or entity responsible for making payments of winnings or acting as an online gaming intermediary.

(First year of gaming)

Computation of Net winnings:

In Short,

Important points to keep in mind

Tax will not be deducted on an insignificant withdrawal if all of the following conditions are satisfied:

(i) net winnings comprised in the amount withdrawn does not exceed Rs 100 in a month;

(ii) tax not deducted on account of this concession is deducted at a time when the net winnings comprised in withdrawal exceeds Rs 100 in the same month or subsequent month or if there is no such withdrawal, at the end of the financial year; and

(iii) the deductor undertakes responsibility of paying the difference if the balance in the user account at the time of tax deduction u/s 194BA is not sufficient to discharge the tax deduction liability calculated in accordance with Rule 133

Applicability of TDS if net winnings are partly in cash party in kind?

In a case, where money in user account is used to buy an item in kind and given to user then it is net winnings in cash only and the deductor is required to deduct tax at source u/s 194BA accordingly.

However, there might be instances where the winning of the game is a prize in kind. In such situation provision of sec 194BA(2) will operate and FMV* is to be taken as the value of the prize and the prize is to be released after the deductee provides proof of payment of such tax (e.g., Challan details etc.).

In the alternative, as an option to remove difficulty i.e., if cash component is not sufficient to meet the tax liability, the deductor may deduct the tax u/s 194BA and pay to the Government. In the Form 26Q the deductor will need to show this as tax deducted by him or net winning under 194BA of the Act.

It is also emphasized here that the responsibility to deduct and deposit of TDS is cast upon the OGI on such winnings before releasing the winnings.

*FMV:

Valuation of winnings in kind would be based on fair market value, except in the following :

• OGI has purchased the winnings: The purchase price will be the value of the winnings.
• OGI manufactures such items: The price that is charged to customers will be the value of the winnings.

OTHER IMPORTANT POINTS

For payee

No deduction of any expenditure or allowance

Section 58(4) provides that no deduction in respect of any expenditure or allowance in connection with such income shall be allowed in computing the income by way of winning from lotteries, crosswords, puzzles, races, card games, and other games of any kind or form of gambling or betting of any form or whatsoever.

Carry forward and set off of losses

• Set off of losses: When calculating the total net winnings, you are allowed to offset or subtract losses from one game against the winnings from another game. This means that if you lose in one game and win in another, the loss can reduce the overall taxable winnings.
• Carry forward of losses: There is no provision under the Act that provides for set off and carry forward of losses under the head income from other sources except losses incurred by the assessee in the activity of owning and maintaining race horses. Thus, the loss from online gaming cannot be carried forward.

No Benefit of Maximum Exemption Limit

The income computed under section 115BBJ shall be taxable at a flat rate of 30% without giving the benefit of the maximum exemption limit.

Rebate under section 87A

Rebate is available under both default and new regime subject to the condition that the assessee must be a resident individual and his/her income does not exceed 5Lakhs /7Lakhs.

No deduction

No deduction u/s 80C or 80D or any other deduction/allowance is allowed from such income.

For Payer

Deduction of TDS at a higher rate u/s 206AB of the Act.

Section 206AB of the Act provides for a higher rate of tax deduction where the payee is a non-filer of income-tax returns.

GST Implication on Online Gaming

Earlier the GST rates were different for games of skill and games of chance. However, since October 1, 2023, there is no distinction between a 'game of skill' and a 'game of chance' when it comes to GST rate. Both types of games are uniformly taxed at the rate of 28%.GST is levied on the gross gaming revenue (GGR) /platform fee/ registration fee, etc by whatever name be it called.

GST Levy on Online Gaming

Entry 6 of Schedule Ill of CGST Act is amended to exclude specified actionable claims* from the said Entry, so as to provide clarity regarding the taxability of actionable claims involved in or by way of casinos, horse racing, and online gaming and accordingly, to be taxed as supply of goods.

The expression Online Gaming is defined in Section 2(80A) of the CGST Act, 2017. Online Gaming means offering of a game on the internet or an electronic network and includes online money gaming.

The expression Online money gaming is defined in Section 2(80B) of the CGST Act, 2017. As per this provision, online money gaming means online gaming in which players pay or deposit money or money's worth including virtual digital assets, in expectation of winning money or money's worth including virtual digital assets, in any event including game, Scheme, Competition, or any other activity or process irrespective of chance or skill, and irrespective of whether permissible by Law or not.

Specified actionable claim is defined in Section 2(102A) of the CGST Act, 2017 means the actionable claim involved in or by way of-

(i) betting;
(ii) casinos;
(iii) gambling;
(iv) horse racing;
(v) lottery; or
(vi) online money gaming*;

Virtual Digital Assets is defined in Section 2(117A) of the CGST Act, 2017 and it provides that it shall have the same meaning as assigned to it in clause (47A) of section 2 of the Income Tax Act, 1961.

Thus, the "specified actionable claim" qualifies as supply of goods. All other actionable claims are outside the scope of the definition of supply.

Amendment in the definition of supplier

The definition of supplier has also been amended by inserting a proviso in clause 105 of Section 2 of CGST Act, 2017, that provides as under: -

a person who organizes or arranges, directly or indirectly, supply of specified actionable claims, including a person who owns, operates or manages a digital or electronic platform for such supply, shall be deemed to be a supplier of such actionable claims,

• whether such actionable claims are supplied by him or through him and
• whether consideration in money or money's worth, including virtual digital assets, for the supply of such actionable claims is paid or conveyed to him or through him or placed at his disposal in any manner, and all the provisions of this Act shall apply to such supplier of specified actionable claims as if he is the supplier liable to pay the tax in relation to the supply of such actionable claims

Requirement of mandatory registration under GST provision

Section 24 of the Central Goods and Services Tax Act, 2017 is proposed to stipulate the requirement for registration under Indian GST laws for individuals or entities offering online money gaming services from locations outside of India.

Taxability of cross-border supplies of online money gaming by a supplier located outside India to a place in India i.e., Overseas online gaming platforms

A new section 14A was inserted in the IGST Act to provide for special provision for the supply of online money gaming by a person located outside the taxable territory to a person in India, inter alia to provide for:

Liability on the said supplier for paying integrated tax on such supply

A supplier of online money gaming, not located in the taxable territory, shall in respect of the supply of online money gaming by him to a person in the taxable territory, be liable to pay integrated tax on such supply.

Single registration of the said supplier through the Simplified Registration Scheme

The supplier of online money gaming shall obtain a single registration under the Simplified Registration Scheme referred to in sub-section (2) of section 14 of this Act:

Provided that any person located in the taxable territory representing such supplier for any purpose in the taxable territory shall get registered and pay the integrated tax on behalf of the supplier:

Provided further that if such supplier does not have a physical presence or does not have a representative for any purpose in the taxable territory, he shall appoint a person in the taxable territory for the purpose of paying integrated tax and such person shall be liable for payment of such tax.

Blocking of access by the public in case of failure to comply with the provisions

In case of failure to comply with provisions of sub-section (1) or sub-section (2) by the supplier of the online money gaming or a person appointed by such supplier or both, notwithstanding anything contained in section 69A of the Information Technology Act, 2000, any information generated, transmitted, received or hosted in any computer resource used for supply of online money gaming by such supplier shall be liable to be blocked for access by the public in such manner as specified in the said Act.

Value of supply of online gaming and actionable claim in casino

The Government, exercising the powers under Section 15(5) of the CGST Act, 2017, has notified the value of supply for (i) online money gaming, (ii) online gaming (excluding online money gaming), and (iii) actionable claims in casinos. Rule 31B and Rule 31C of the CGST Rules specify how to determine the value of these supplies, including online gaming and actionable claims in casinos.

As per Rule 31B. Notwithstanding anything contained in this chapter, the value of the supply of online gaming (including of supply of actionable claims involved in online money gaming) shall be the total amount paid or payable to or deposited with the supplier by way of money or money worth. including virtual digital assets by or on behalf of the player.

Provided that any amount returned or refunded by the supplier to the player for any reasons whatsoever, including the player not using the amount paid or deposited with the supplier for participating in any event, shall not be deductible from the value of the supply of online money gaming.

In simple words, according to Rule 31B, the value of online gaming services is the total amount of money or equivalent value (including virtual digital assets) paid by the player to the supplier. However, any refunds or returns of money from the supplier to the player, for any reason, do not reduce the value of the online gaming service.

Value of supply of actionable claims in case of casino Rule 31C.

Notwithstanding anything contained in this chapter, the value of supply of actionable claims in the casino shall be the total amount paid or payable by or on behalf of the player: -

a. for purchase of the tokens, chips or coins or tickets by whatever name called for use in the casino; or,

b. for participating in any event, including game, scheme, competition or any other activity or process, in the casino, in cases where the token, chips, coins or tickets by whatever name called are not required.

Explanation. For the purpose of rule 31B and rule 31C, any amount received by the player by winning any event, including game, scheme, competition or any other activity or process which is used for playing by the said player in a further event without withdrawing, shall not be considered as the amount paid to or deposited with the supplier by or on behalf of the said player.

Advance receipts to be taxable

Registered persons providing certain actionable claims must pay GST based on the time of supply, which is the earlier of the following two events:

• When the supply of goods is made and invoice is issued,
• When payment is received, whichever is earlier.

Proposal to transition the customs-based levy to an inter-state IGST levy for specified imported goods

Import of online money gaming has been removed from the ambit of the Customs Tariff Act, 1975, and only IGST would be levied in accordance with section 5(1) of the IGST Act, 2017.

Therefore, the supply of online money gaming from outside India shall be liable to IGST as goods in accordance with the GST provisions. The provisions of the customs laws shall not apply in this instance.

Other Important Points

Overseas online money gaming service providers are exempted from submitting PAN / State before applying for registration. (Rule 8).

Principal Commissioner of Central Tax in Bengaluru West and their subordinate officers are authorized to grant registration for overseas service providers and act as jurisdictional officers.

The overseas supplier of online money gaming will be required to submit a registration application in FORM GST REG - 10. (Rule 14).

Furthermore, such a registered person will be required to file a return in FORM GSTR-5A on or before the 20th day of the succeeding month. (Rule 64).

In case of a supply of online money gaming to an unregistered person, the state name of the recipient should be mentioned on the tax invoice, which would be considered as the address on the record of the recipient. (Rule 46).

Online money gaming service providers are to make the deposit under sub-rule (2) through international money transfer through the Society for Worldwide Interbank Financial Telecommunication payment network, from the date to be notified by the Board. (Rule 87(3), second proviso).

Thus, put in a nutshell,

• All activities like betting, casino, gambling, horse racing, lottery, online money gaming have therefore been included in the definition of 'specified actionable claim' treating such activity to be a supply and hence taxable under GST Act.
• In the case of online gaming, the activities are taxed at the rate of 28% on the full value of the consideration which shall be inclusive of the platform fee and the prize pool contributed by the user irrespective of the distinction made between the games of skill and games of chance.

The author can also be reached at capraveenbisht@yahoo.in