New tax regime to impact casual gamers – Crypto News – Crypto News
Connect with us
Online casual gamers comprise a bulk of the revenue of most gaming platforms (Photo: iStock) Online casual gamers comprise a bulk of the revenue of most gaming platforms (Photo: iStock)

Technology

New tax regime to impact casual gamers – Crypto News

Published

3 years ago

on

NEW DELHI : The government’s proposal to remove the minimum threshold of 10,000 for tax deduction at source (TDS) on net winnings from online gaming may end up hurting the industry’s prospects, as online casual gamers, who account for a large portion of revenue for most local gaming platforms, will be discouraged from playing more to avoid paying more taxes.

Till now, TDS was not applicable to those winning less than 10,000, but under the new tax proposal introduced in the Union budget for FY24, the Center has proposed that tax should be levied on the net winnings and TDS can either be calculated at the end of the financial year or at the time of withdrawal by a player. Thus, if the user makes a partial withdrawal, TDS will be deducted from the total amount of net winnings.

Furthermore, as per the existing rules, firms need to levy TDS on winnings, which didn’t take into account the entry fees and other payments users made to enter online gaming tournament or competition. But, the Finance Bill 2023 has added two new sections to the Income Tax Act. Section 115BBJ proposes that income tax of 30% should be calculated on a user’s net winnings, and Section 194BA will allow tax to be deducted at the end of the year or at the time of the withdrawal of winnings.

For real-money gaming and fantasy sports, players pay a small amount as participation fee, which makes up the total prize pool from which the winnings are distributed after the platform provider deducts a commission. The money won by players is put in their wallets on the gaming platform, which they can withdraw whenever they want. The actual profit made by a player from a stake is net winning. Hence, if a player paid 30 to participate in a game where the prize money is 100, the net winning would be 70.

Two senior executives from top gaming firms, seeking anonymity, said platforms in India get 80-90% of revenue from players who pay less than 10 at one go, since they are playing for entertainment. Such gamers may be deterred if tax is deducted from the winning amount, they added.

“Typically these players would withdraw money after a couple of games. That behavior will be affected now,” one of the executives said. The second executive said it will be a while before platforms realize the full effect, but scales could tip to either side—user numbers may drop as it did for crypto firms last year. After the government introduced TDS, or user engagement may go up as players withdraw funds less frequently.

Furthermore, some experts said this may also increase the compliance burden on the platforms, and add to their costs. The proposed amendment of the IT (Intermediary Guidelines and Digital Media Ethics Code) Rules 2021 last month to bring online gaming under its ambit, has already added to compliance costs, they added. “The platforms will now have to do KYCget pan card details, and file TDS returns, even for small transactions. That will increase their compliance burden,” said Jay Sayta, a technology and gaming lawyer.

However, the gaming industry welcomed the Centre’s move to recognize online gaming as a separate category from gambling or betting in the Finance Bill.

Paavan Nanda, co-founder of Winzo Games, said: “Introduction of ‘net winning’ in place of just ‘winning’ is definitely a respite and is more practical from a player’s standpoint”. However, removing the TDS threshold will have a significant impact on the company’s 100 million casual gamers, who typically spend 300 per month, and most of their winnings are less than 500 per month or 6,000 per annum.

“Removal of the threshold will discourage smaller players but they also get benefits of set-off of losses for the calculation of net winnings,” said Sayta.

Sayta said some players will realize that withdrawing funds is not a prudent option and might keep the funds idle to play more.

“This signals the government’s recognition of the unique nature of each (gaming and gambling) and the need for separate tax policies,” said Vikash Sureka, chief financial officer of gaming unicorn Mobile. Premier League (MPL).

Rahul Tewari, Chief Financial Officer, Games24x7 said that the amendment provides the much-needed rationalization of the TDS regime for winnings arising from online games and takes into account the fact that the core gameplay in this sector is different from others.

Catch all the technology news and Updates on Live Mint. Download Mint News App to get Daily market update Live business news,

More
less

Related Topics:
Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Trending