Bonuses, referrals and incentives offered by online gaming companies to their customers will be considered as part of winnings and is subject to tax, the Indian government said on Monday.

Online gaming companies will be required to deduct taxes at source if players claim their net winnings, including bonuses or incentives, according to guidelines issued by the Central Board of Direct Taxes.

However, bonuses or incentives will not be taxed if they are not claimed or withdrawn, the agency said.

Net winnings will be calculated by subtracting the amount withdrawn by a customer from the sum total of deposits in the account and opening balance at the beginning of the year.

The net winnings of a player on online gaming platforms are now taxed at 30 per cent.

TDS for winning

Online gaming companies will not be required to deduct taxes on winnings withdrawn by a player if the amount is less than Rs 100 ($1.22) a month.

Finance Act 2023 inserted a new section 194BA in the Income-tax Act, 1961, with effect from April 1, 2023, which mandates online gaming platforms to deduct income-tax on the net winnings in the person’s user account.

The Central Board of Direct Taxes (CBDT) has notified Rule 133 of the I-T Rules defining the manner and procedure for deduction of the TDS.

Net winnings of an online gamer would be calculated after subtracting the total deposits and opening balance in the user account from the amount withdrawn.

To remove the difficulty in deducting tax at source under section 194BA of the Act for “insignificant withdrawal”, it is clarified that tax may not be deducted on withdrawal on the satisfaction of all of the following conditions

(i) Net winnings in the amount withdrawn does not exceed Rs 100 in a month;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

(iii) The deductor undertakes the responsibility of paying the difference if the balance in the user account at the time of tax deduction is not sufficient to discharge the tax deduction liability calculated.