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In good news for online gamers, the government on Wednesday proposed to remove the minimum threshold for TDS and clarify taxability relating to online gaming.

Currently, 18 per cent tax is being levied on the commission collected by online gaming companies for games not involving betting or gambling.

Among the Union Budget 2023-24 proposals were "removing the minimum threshold of Rs 10,000 for TDS and clarifying taxability relating to online gaming".

Paavan Nanda, Co-Founder, WinZO games, said that the proposed changes lend clarity to the gaming companies, while creating an airtight accounting system for the exchequer.

"Aligning it with a player's net winnings in a financial year seems like a just provision for the 500 million online gamers in India. Recognising and carving out a separate clause in the act for 'Online Gaming' as against gambling or betting is in line with MeitY's recent draft amendment to IT rules for Online Gaming, and is a testimony to the government's genuine intent to nurture the burgeoning sector," Nanda added.

The industry players hoped that the outcome would retain the current 18 per cent tax slab on gross gaming commissions.

Roland Landers, CEO, All India Gaming Federation, said 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.

"While we await the CBDT's 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," said Landers.

Industry estimates suggest that there are around 20,000 games from Indian companies on the Google Play Store across different categories.

According to Broadband India Forum (BIF), given the size and scale of the industry, it is recommended that online games are clearly defined more particularly in respect of elements of consideration, which may be in the form of service fee/commission charged by gaming intermediary for provisioning or facilitating or organising the online gaming service to the users in addition to the deposits towards prize pools.

"The Draft Online Gaming Rules provide a great fillip to the promotion of online skill-based gaming which is expected to be one of the biggest drivers of demand for broadband and help realise the Vision of PM Narendra Modi to help India tap the multi-trillion dollar opportunity and lead the international gaming sector," said T.V. Ramachandran, President, BIF.

Pranay Bhatia, Partner, Tax & Regulatory Services, said that the online gaming sector needed an independent recognition which the budget proposals provided.

"Outlining a simplified withholding tax regime will go a long way in addressing the anxieties of online gaming intermediaries. However, certain ambiguities arising from the language of the provisions cannot be ruled out," Bhatia noted.