The Central Board of Direct Taxes has issued guidelines requiring online gaming companies in India to deduct taxes at source if players claim their net winnings, including bonuses or incentives. Net winnings will be calculated by subtracting the amount withdrawn by a customer from the sum total of deposits in the account and the opening balance at the beginning of the year. Currently, a player’s net winnings on online gaming platforms are taxed at 30%. However, bonuses or incentives will not be taxed if they are not claimed or withdrawn.
Taxation on winnings withdrawn
Online gaming companies will not be required to deduct taxes on winnings withdrawn by a player if the amount is less than Rs. 100 ($1.22) per month. This is a relief for both players and online gaming companies.
Panel of state finance ministers’ report on taxation
In December 2022, a panel of state finance ministers was yet to submit its report on taxation of the online gaming sector in India, which is crucial to a final decision on how the levies should be imposed. The panel deliberated for weeks on how it should tax online gaming companies, and whether federal tax should be imposed on only the profits of firms or on the value of the entire pool of money collected from participants. However, officials said the panel was unlikely to reach a consensus in December.
Rise in popularity of real-money online games
Real-money online games have become enormously popular in India, prompting foreign investors like Tiger Global and Sequoia Capital to back local gaming startups Dream11 and Mobile Premier League, which are popular for their fantasy cricket games. The new guidelines on taxation of online gaming companies are aimed at regulating the sector, which has seen significant growth in recent years. The government hopes that the guidelines will provide clarity and transparency for both players and online gaming companies.
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