There are several wallets associated with one user. How “net winnings” should be calculated based on a user’s many wallets
In accordance with Rule 133, every user account, regardless of name, that is registered with an online gaming intermediary and in which a user’s winnings, taxable deposits, non-taxable deposits, or withdrawals are credited or debited is considered to be a user account. Therefore, for the purposes of calculating net winnings, each wallet that qualifies as a user account should be treated as a user account.
Additionally, it has been made clear in Rule 133 that each user account must be taken into account when there are several user accounts belonging to the same user for determining net wins. The total of all deposits, withdrawals, and balances in all user accounts shall be deemed to be the deposit, withdrawal, or balance in the user account.
As an example, consider a person who has several user accounts under a single deductor (one TAN). Each of these user accounts is to be taken into account when figuring out the tax that needs to be subtracted in accordance with section 194BA of the Act. Withdrawals from any of these user accounts would be regarded as withdrawals and deposits in any of these user accounts would be regarded as deposits (taxable or non-taxable as per the definition in Rule 133). Let’s say one of these user accounts has its first withdrawal. Net wins must be computed as follows in order to determine the tax that must be withheld in accordance with section 194BA:
Net winnings =A-(B+C), where
A = Amount withdrawn from the user account;
B = Aggregate amount of non-taxable deposit made in the user account by the owner of such account during the financial year, till the time of such withdrawal; and
C = Opening balance of the user account at the beginning of the financial year.
The non-taxable deposits in all of the user accounts under that deductor (one TAN) have to be added together to determine amount B in this case. Similar rules would apply to the calculation of all other amounts subject to Rule 133. However, if the one deductor (one TAN) uses multiple platforms and it is not technologically possible for him to integrate multiple user accounts across platforms, he may, at his discretion, determine the amount of tax that must be deducted for each platform in order to comply with section 194BA of the Act. However, even in that scenario, all user accounts associated with a single user on a single platform must be taken into consideration when using the calculations in Rule 133 to determine net wins.
The same user’s transfer from one user account to another, maintained with the same online gaming intermediary, must not be regarded as a withdrawal or deposit, as the case may be, according to Rule 133, which has also been clarified. However, transfers between user accounts under the same online gaming intermediary across platforms shall be treated as withdrawals or deposits for the purposes of calculating net winnings under Rule 133 if the deductor is deducting tax under section 194BA of the Act for each platform separately, as discussed in the sentence immediately preceding this one.
Is it a taxable deposit or a non-taxable deposit if a user borrows money and deposits it in his user account?
The amount that the user deposits must be non-taxable in order for it to qualify as such, meaning it must come from already-taxed income or not be subject to taxation. When a user borrows money and deposits it in his user account, the deposit is regarded as non-taxable.
What is going to occur with bonuses, referral bonuses, incentives, etc.?
The user receives bonuses, referral bonuses, incentives, etc. from the online gaming mediator. According to Rule 133, they are to be regarded as taxable deposits. The taxable deposit will increase the balance in the user’s account and cannot be subtracted from non-taxable deposits when determining net winnings. Therefore, any deposit made in the form of a bonus, referral bonus, incentive, or other type of payment would be considered part of the player’s net winnings, and tax under Section 194BA of the Act must be withheld both at the time of withdrawal and at the conclusion of the fiscal year.
Some deposits might also be made in the form of coins, coupons, vouchers, counters, etc. The equivalent amount in money of such a deposit in this case would be regarded as a taxable deposit and would as a result be included in the balance of the user account. However, it has been observed that some bonuses and incentives are credited to user accounts just for gaming reasons and cannot be withdrawn or utilised for any other purposes. According to Rule 133, such a deposit is to be disregarded for determining net winnings. As a result, they will not be counted towards non-taxable deposits or the starting or closing balances of user accounts. As a result, they won’t count towards net winnings to the extent they do. The person required to keep separate accounts for such deposits under section 194BA of the Act must be liable to deduct tax. Additionally, these incentives or bonuses would be recognised as taxable deposits at the time of recharacterization if and when they are recharacterized and allowed to be withdrawn. As a result, they will be included in net wins in the recharacterization year.
When do we deem that sum to have been withdrawn?
As previously mentioned, Rule 133 has been updated to make it clear that transfers between user accounts of the same user that are maintained with the same online gaming intermediary are not to be construed as withdrawals or deposits, as the case may be. However, it will be seen as a withdrawal if the money is transferred from the user account to any other account. Any transfer from a user account to an account that is not a user account is considered a withdrawal in the eyes of the deductor because such an account is not registered with the online game middleman (for whom he is a deductor).
It will also be regarded as a withdrawal when money from the user’s account is used to issue coupons, vouchers, or other items in kind for the purchase of goods or services. Before issuing such coupons or things in kind, the person who is required to deduct tax at source under section 194BA of the Act must ensure that the tax, as required to be deducted, is deducted at source under section 194BA. It’s also important to keep in mind the clarification offered in the response to Question No. 1.
It has been made clear that transfers between user accounts under the same online gaming intermediary across platforms will be treated as withdrawals or deposits for the purposes of calculating net winnings under Rule 133 if the deductor is deducting tax under section 194BA of the Act for each platform separately.
Many players only deposit very small amounts, and they also only withdraw very small amounts when they win. For each little withdrawal, tax deductor compliance would increase if tax was withheld at source in accordance with section 194BA of the Act. Can there be leniency to facilitate compliance?
It is made clear that tax may not be deducted on withdrawal if all of the following requirements are met in order to eliminate difficulty in deducting tax at source under section 194BA of the Act for negligible withdrawal:
(i) the amount of net winnings included in the withdrawal does not exceed Rs 100 in a single month;
(ii) tax not deducted on account of this concession is deducted when the amount of net winnings included in the withdrawal exceeds Rs 100 in the same month or a subsequent month, or if there is no such withdrawal, at the end of the financial year; and
(iii) the deductor assumes responsibility for making up the difference if the balance in the user account at the time of tax.
How would the tax deduction under section 194BA work when the net winnings are received in kind?
It should be made clear right away that when funds from the user’s account are used to purchase an item in kind and handed to the user, only cash is being won, and the deductor is required to withhold tax at source in accordance with section 194BA of the Act. However, there can be circumstances in which winning the game results in a prize in kind.
The Act’s section 194BA sub-section (2) will take effect in that circumstance.
If the net winnings are entirely in kind, partially in cash, or partially in kind but only partially in cash, the net winnings must be taxed on the entire amount of the net winnings. In these circumstances, the person in charge of payment must make sure that tax has been paid in relation to the net earnings before releasing the winnings. After receiving verification that the tax has been paid in the aforementioned instance, the deductor will release the net gains in kind. As an alternative, the deductor may deduct the tax under section 194BA of the Act and pay it to the government in order to resolve any difficulties. The deductor must indicate this as tax deducted by him on net winnings under section 194BA of the Act in Form 26Q.
How will the requisite valuation of winnings in kind be done?
Except in the following circumstances, the valuation would be based on the fair market value of the prizes in kind:
(i) The online game middleman has already paid for the gains before giving them to the player. In that instance, the value of the winning shall be the purchase price.
(ii) The intermediary for the online game creates the things awarded as prizes.
In those circumstances, the amount of any winnings shall be equal to the price that it charges its clients for such things. Furthermore, it is made clear that GST will not be taken into account when valuing prizes for TDS purposes in accordance with section 194BA of the Act.
While the statute took effect on 1.4.2023, some regulations were released after that date. Is there going to be an easing of the penalties in the interim, that is, between 1.4.2023 and the release date of the Rules and guidelines?
Even prior to the publication of Rule 133 or this instruction, taxpayers were required by section 194BA to deduct tax at source. It is anticipated that they will fulfil that obligation. However, if there is a shortfall in the tax deduction for the month of April 2023 due to a delay in the publication of Rule 133 or this Circular, such a shortfall may be deposited with the tax deduction for the month of May 2023 by the end of June 2023. In that situation, there won’t be any legal repercussions.