The Finance Ministry is reviewing applicable tax provisions on online gaming and may bring the winners of amount less than Rs.10,000/- within the TDS regime. In present scenario TDS provisions kicks up if an individual wins Rs. 10,000/- or more in an online game. To escape the liability of deducting tax (TDS) some online gaming companies tweak the winning amount into two or multiple installments. Therefore, ministry is considering to lower the threshold to ensure tax liability is not avoided.
According to sources, there are two issues at hand. First, TDS provisions currently kick in for winnings of Rs 10,000 and above. However, some online gaming companies tweak the prize amount into two or multiple installments to avoid TDS. This threshold may be lowered further to ensure that the tax is not avoided.
Second, few online gaming companies offer coupons in lieu of certain part of winning amount and pay the remaining part in the form of cash prize to keep the willing amount below Rs. 10,000/- and avoid tax liability. The coupons can be used in the next game to be played by an individual.
Section 194B of Income Tax Act, 1961 creates an obligation of the company or payer to deduct tax @ 30% on the winnings from lotteries, crossword puzzles,card games etc. if the winning amount amount is Rs. 10,000 or more. Tax experts are anticipating more clarity on taxability of such online games.
Winnings from online games are taxed @ 30% as per Section 115BB of the Income Tax Act, 1961. Recently,Central Board of Direct Taxes has urged the winners to disclose their income from online games in their IT returns.
Imposition of tax on online games has been a center of attraction for the government over past few months. According to sources, detailed guidelines are being prepared on the taxability of online gaming by revenue department in order to ensure that game host deduct the tax on entire winning amount even if the winning sum is offered in the form of vouchers, token or other non cash payments.