According to the union budget 2023, which was unveiled on Wednesday and outlined the government’s position on taxing the industry for the first time, earnings from online gambling would henceforth be taxed at source.
“Tax deducted at source (TDS) and taxability on net profits at the moment of withdrawal or at the conclusion of the fiscal year are recommended for online games. Additionally, TDS would not have the threshold of 10,000, according to the budget draught.
“The threshold limit of $10,000 for TDS shall continue but shall apply to cumulative winnings during a financial year for lottery, crossword puzzles, games, among others.”
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Since the government established an inter-ministerial task force to regulate the sector, a structure has been in the works for several months. Last month, the ministry of electronics and information technology proposed formalising the structure by bringing internet gaming platforms under the jurisdiction of the intermediary guidelines, introducing compliance obligations, user verification, and a grievance redressal mechanism.
In the proposed changes to the regulations, which were posted on the ministry’s website, the government added a new definition that categorizes online games as “a game that is offered on the web and is attainable by a user through a computer resource if he makes an instalment with the expectation of earning winnings,” with an online gaming intermediary making reference to a platform that provides a variety of such games.
The rules go on to define “deposit” as a deposit made or committed to, in cash or in kind, by the user in exchange for their participation in an online game, and “winnings” as any prize given or intended to be given to an online game player based on their performance and in accordance with the game’s rules.
The proposed changes restrict internet gaming to the degree that it is covered by existing federal and state laws, including those pertaining to gambling and betting, which are governed differently in each state.
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A game that violates any legislation now in effect in India, “including any such regulation relating to gambling or betting or the age at which an individual is competent to enter into a contract,” is not permitted to be hosted by intermediaries.
Additionally, the online gaming intermediary is required to “identify the user and verify his identification at the moment of beginning of a user account-based connection for an online game.”
