The Central Board of Direct Taxes (CBDT) on May 22, 2023, issued the guidelines for the removal of difficulties under sub-section (3) of section 194BA of the Income-tax Act, 1961.
Section 194 BA of the Income-tax Act, 1961 states that a person, who is responsible for paying to any person any income by way of winnings from any online game during the financial year deducts income tax on the net winnings in the person's user account. Tax must be deducted at the time of withdrawal and at the end of the financial year. Net winning is required to be computed in the manner as may be prescribed. The manner of computation of net winning has now been prescribed in Rule 133 of the Income-tax Rules 1962, vide notification no. 28/2023 dated May 22, 2023.
The following guidelines have been stated:
• There are multiple wallets under one user. How "net winnings" is to be computed with respect to multiple wallets of one user
It has been clarified in Rule 133 that the user account shall include every account of the user, by whatever name called, which is registered with an online gaming intermediary and where any taxable deposit, non-taxable deposit or the winning of the user is credited and withdrawal by the user is debited. Thus each wallet that qualifies as a user account shall be considered a user account for the purposes of computing net winnings.
• If a user borrows some money and deposits it in his user account, will it be considered a taxable deposit or a non-taxable deposit?
For non-taxable deposits, it is necessary that the amount deposited by the user is not taxable i.e. it is from already taxed income or it is not chargeable to tax. In a case where the user borrows the money and deposits it in his user account, it shall be considered a non-taxable deposit.
• How will bonuses, referral bonuses, incentives, etc. be treated?
Bonus, referral bonuses, incentives, etc are given by the online game intermediary to the user. They are to be considered as a taxable deposits under Rule 133. The taxable deposit will increase the balance in the user account and is not allowed to be deducted in the calculation of net winnings as only non-taxable deposits are allowed to be deducted. Thus any deposit in the form of a bonus, referral bonus, incentives, etc would form part of net winnings and tax under section 194BA of the Act is liable to be deducted at the time of withdrawal and at the end of the financial year.
• When the net winnings are in kind how will tax deduction under section 194BA operate?
At the outset, it may be clarified that where money in a user account is used to buy an item in kind and given to the user then it is net winnings in cash only and the deductor is required to deduct tax at source under section 194BA of the Act accordingly.
[Circular No. 5/2023]
