Budget 2023 has revised the tax rules for online gaming by removing the Rs 10,000 threshold, winnings above which are taxed. Now, players will be taxed on cumulative winnings, net of losses, at the time of withdrawal of the monies.
The removal of the threshold has brought about a two-fold change in the industry, says Siddharth Sharma, VP, Business Strategy, Head Digital Works.
Breaking down how the change will work, Sharma said, “Previously, if a player won more than Rs 10,000, the operator would withhold 30 percent as TDS (tax deducted at source). This restriction led to the creation of contests with limited winnings to avoid TDS deductions. With the removal of the TDS threshold, players can now participate in contests with higher prize monies without having to worry about breaching TDS thresholds.”
What about taxes then?
The TDS will only apply when the player withdraws their winnings. This gives players the opportunity to continue playing and potentially offset the TDS if they lose in their later games. Per experts, the new rule has also eliminated the need for players to split their winnings to avoid TDS deductions.
Convenience and flexibility are the two key takeaways from the new tax arrangement in the space.
Per a recent Lumikai report, the average revenue per paying user grew 11 percent to $20/year in 2021-2022, with 2 million new paying users added per month. The new rule could further add to this number as experts feel it could encourage more players to try their hand at online gaming.
However, the new rule doesn’t come without its share of challenges.
According to Rohit Agarwal, Founder and Director at the gaming-focused marketing agency Alpha Zegus, a great majority of the audience on RMG (real money gaming) platforms spend and earn less than Rs 5,000. So far, these players have operated under the Rs 10,000 threshold, making their earnings tax-free. The fact that small-ticket players will also be liable to taxes on winnings could be slightly discouraging, as they will have to give up a part of whatever little they earn.
Why was the threshold important?
“Since a great majority of the audience on RMG platforms spend and earn less than Rs 5,000, they were off the tax radar, and hence outside the tax net. This move will ensure that every player is accountable and inside the tax net, which is critical,” Agarwal said.
For instance, players typically spend less than Rs 300 per month at real money entertainment platform WinZO. And more than 99.9 percent of the 100 million users on the platform have winnings of less than Rs 500 per month or Rs 6,000 per annum.
Naturally, Paavan Nanda, its CEO and Co-Founder, also feels that the removal of the TDS threshold could impede the growth of the industry as there could be an adverse impact on casual gamers, the largest category of gamers in India.
Some even feel the move could lead to a downfall in the number of casual gamers. Yudiz Solutions Chairman and Director Bharat Patel says the move can demoralise Indian gaming companies with a small winning pool and a minuscule number of users/players, as their user base may further reduce.
However, the majority of industry stakeholders view the change as a step in the right direction.
“Over the last couple of months, the steps taken by the government clearly demonstrate that the government recognises that this decade belongs to online gaming, and it is working towards making the regulatory environment conducive for the industry. This is really encouraging,” said Shivanandan Pare, Executive Director and CEO, Deltatech Gaming.