How to Compute Tax and TDS on Net Winnings from Online Games?

With effect from the assessment year 2024-25, a new Section 115BBJ has been introduced by the Finance Act 2023 to tax net winnings from any online games. A corresponding Section 194BA has also been inserted with effect from 01-04-2023 for the deduction of tax from the net winnings from online games. It is to be noted that only the net winnings from online games shall attract chargeability under Section 115BBJ. Further, TDS under section 194BA is also required to be deducted from the amount of net winnings.

The provisions provide that the net winnings shall be computed in the manner as may be prescribed. The manner of computation of net winning has been prescribed in Rule 133 of the Income-tax Rules 1962.

Further, the CBDT has issued removal of difficulty guidelines for the purpose of deduction of tax under Section 194BA. These guidelines are binding on the income-tax authorities and the person liable to deduct income-tax. It is to be noted that unlike Section 194BA, Section 115BBJ does not empower the CBDT to issue removal of difficulties guidelines to remove difficulties that may arise in implementing Section 115BBJ. A reference may be taken from these removal difficulties guidelines for Section 115BBJ, but they cannot be considered binding. It is settled law that tax collection provisions like TDS are not determinative of the nature of levy and taxability. What suffers TDS may not be taxable, while what is exempt from TDS may not necessarily be tax-exempt.

This article explains the computation mechanism for net winnings and discusses the guidelines issued by the CBDT.

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