Budget 2023: Gaming community applauds introduction of section 194BA for winnings from online games

The last few months have been all about recognition and regulation for the gaming and esports industry in India. The 2023 Union Budget continued the recognition feat for the industry. The announcement of removing the minimum threshold of Rs 10000 for TDS on online gaming and the introduction of a new section 194BA in direct taxes provides much needed clarity on taxability in the space.

"The inclusion of a specific provision for online gaming under Sec 194B of the Income Tax Act is not only progressive but also a win-win scenario for both the government and the industry,” says Siddharth Sharma, VP Business Strategy, Head Digital Works.

According to Sharma, the move shows how the government has applied itself to solve for the needs of both the gamers and the industry. He says deducting TDS on net winnings at the end of a financial year will catalyze the growth of this sector even further.

Roland Landers, CEO of All India Gaming Federation points out another direct advantage of this new section in direct taxes. “The Finance Bill carves out the distinction between betting and gambling activities and online games, through introducing a new section 194BA which taxes a user’s net winnings from online games at the end of the financial year,” he says.

Stakeholders, however, are awaiting further clarifications and guidelines from the Central Board of Direct Taxes on this.

More good news as mobile production and 5G get boost

Moving on from gaming, Lokesh Suji, Director of Esports Federation of India & Vice President of the Asian Esports Federation, says the esports community is awaiting clarity on the taxability for Esports, we are hopeful that the decisions will be in favour of the community and impact it positively.

Even though the budget didn’t specifically bring out the matters of concern related to Animation, Visual Effects, Gaming and Comic (AVGC) sector, stakeholders in the esports space are glad that attention is given to bring in development that would positively impact the sector. However, the increased mobile phone production and the announcement of focus on 5G based applications are good news for esports brands.

“The increased mobile phone production in India will directly impact the growing interest in mobile gaming. We are also looking forward to the progress of 100 labs for apps development using 5G services that will be set up in engineering institutions. Hopefully this could be the beginning of the 5G era in India,” said Rohit N Jagasia, Founder and CEO of Revenant Esports.

Interdependence of gaming ecosystem and mobile industry

As per a recent report from the Internet and Mobile Association of India, the number of mobile gamers in India is projected to increase to 650 million by 2025. Naturally the community is pleased with the budget.

Animesh Agarwal, Founder & CEO, 8bit Creatives explains the interdependence of the gaming ecosystem and the mobile industry.

“Developer dedication to expanding mobile gaming in India and the advent of different employment opportunities through mobile gaming have all contributed to an increase in the number of Indians adopting mobile gaming. This has also contributed to the growth of the mobile device sector, as professional gamers frequently seek to upgrade their devices as they progress in their career,” he says.

“The commitment of the mobile device companies towards strengthening their presence in the gaming community through dedicated efforts and investments shows in the numerous gaming-specific launches from brands like devices such as One Plus, ASUS, Samsung and others. It will be fascinating to observe the next growth surge of gaming in India and how it contributes to and parallels the rise of the electronics industry,” Agarwal adds.

Budget 2023 impact

While the increased focus on mobile phone production and 5G will directly impact the industry, some other overall touchpoints of the budget will also impact the gaming and esports industry.

Simplifying the KYC system and process for instance will further help in realizing digital India and will enable a seamless experience for consumers.

Gaurav Kapoor, Chief Finance Officer, Baazi Games says, “The Make in India vision will get aboost with a focus on 'Make AI in India and Make AI work for India', online gaming companies can develop new AI-based advancements that can provide a first-of-its-kind experience to users.”

The focus on startups is also a plus for the space.

"India is now the third largest ecosystem for start-ups globally, and ranks second in innovation quality among middle-income countries," says Rahul Tewari, Chief Financial Officer, Games24x7. Tewari adds, "With global attention towards gaming and the advent of new technology in the sector, India can capitalize on its burgeoning domestic gaming industry to realize Hon'ble PM Shri Narendra Modi's vision of making India a global gaming innovation hub."

Union Budget 2023: More on section 194BA

194BA. (1) Notwithstanding anything contained in any other provisions of this Act, any person responsible for paying to any person any income by way of winnings from any online game during the financial year shall deduct income-tax on the net winnings in his user account, computed in the manner as may be prescribed, at the end of the financial year at the rates in force:

Provided that in a case where there is a withdrawal from user account during the financial year, the income-tax shall be deducted at the time of such withdrawal on the net winnings comprised in such withdrawal, as well as on the remaining amount of net winnings in the user account, computed in the manner as may be prescribed, at the end of the financial year.

(2) In a case where the net winnings are wholly in kind or partly in cash, and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the net winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the net winnings.

(3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purposes of removing the difficulty.

(4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income tax authorities and on the person liable to deduct income-tax.

Rates for deduction of tax at source

1.On income by way of winnings from lotteries, puzzles, card games and other games of any sort (other than winnings from online games)- 30 per cent

2. On income by way of winnings from horse races- 30 percent

3. On income by way of winnings from online games- 30 percent