India Budget Introduces Online Game Tax, Delighting Industry

February 2, 2023
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New provisions in India’s budget for 2023 have brought online gaming in from the cold, codifying tax rates for winnings from online and offline games and streamlining their collection.

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New provisions in India’s budget for 2023 have brought online gaming in from the cold, codifying tax rates for winnings from online and offline games and streamlining their collection.

The central government’s budget has delighted gambling industry commentators and potentially strengthens the government’s intent to regulate online gaming at a national level with individual state government approval.

The Finance Bill 2023, presented by finance minister Nirmala Sitharaman to parliament on Wednesday (February 1), would amend Section 194B of the Income Tax Act 1961 to explicitly make winnings involving “gambling or betting of any form or nature whatsoever” taxable income.

Although the tax on winnings on all online games, as well as land-based pursuits such as horseracing, has been retained at a robust 30 percent, the clarification and inclusion of online gaming taxation prompted words of relief and optimism from industry figures.

All India Gaming Federation (AIGF) CEO Roland Landers welcomed the bill, adding that he was “happy to note that [it] carves out the distinction between betting and gambling activities and online games”.

“While we await [the Central Board of Direct Taxes’] clarifications and guidelines in this regard, we are hopeful that the certainty in taxation offered by the budget announcement will be a huge stimulus for the growth of the online gaming industry,” he said on Twitter.

The bill is notable for transferring a taxable winnings threshold on gaming of 10,000 rupees ($122) from individual transactions to customer net winnings at the time of account withdrawals or at the end of the financial year.

This measure seeks to reduce tax avoidance, but it also would relieve gaming companies of enormous amounts of paperwork and compliance risk.

The tax provisions also enshrine certain online gambling definitions and promise greater detail in future issuances on winnings computation and other rules, while separating the categories of offline and online games in terms of tax rates. For now, at least, those rates are identical.

Industry operators and advocates, as well as the AIGF and other gaming lobbies, continue to await the decision of the GST Council on whether a likely 28 percent tax on gaming revenues will be calculated on turnover or gross gaming revenue (GGR).

That decision, which has been delayed several times as governments iron out disagreements and industry supporters clamour for a GGR calculation, is seen by many as a make-or-break moment for companies with narrower profit margins.

However, Wednesday’s budget announcement will boost industry confidence in a central government which, after a slow start, has rallied around a regulated online gaming industry even as some state governments push for bans.

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