The online gaming industry stakeholders have approached the Central Board of Direct Taxes (CBDT) to oppose changes in tax deduction at source (TDS) and Goods and Service Tax (GST) recently.

E-Gaming Federation (EGF), All India Gaming Federation (AIGF) and Federation of Indian Fantasy Sports (FIFS) have requested the CBDT in a letter dated February 23 to reconsider the changes in TDS regime, Mint reported.

The new TDS provisions are set to kick in from April 1.

Until now, the online gaming industry was deducting TDS on winnings under section 194B, which had a threshold of INR 10,000 per game post which the tax was deducted at the rate of 30%.

From April 1, 2023, the INR 10,000 threshold will remain but the tax deduction will be applicable for a user’s annual earnings. In simpler words, any online gaming winnings between 1 April and 30 June will be levied a 30% TDS.

The taxation rule will again change from July 1 and the INR 10,000 threshold for the deduction of TDS will be removed and any transaction on an online gaming platform will incur TDS.

The industry bodies argued that implementing the new TDS regime may cause ambiguity in terms of how tax would be calculated for the two regimes after 31 March in the letter to CBDT. They also added that it could increase the cost of compliance significantly which will make it difficult for small companies to operate.

Moreover, the industry bodies also sought to ease compliance issues.

“The overall step to segregate online gaming from gambling, under section 194 BA of Finance Bill, 2023, is a positive one for the industry. However, increasing the TDS liability for each and every transaction can be a major hurdle, since now, every single transaction will require a TDS mechanism,” Roland Landers, CEO of AIGF, said.

Moreover, Landers also highlighted that companies will also be required to implement two different TDS mechanisms in a short span of time, and many companies are likely to fail in their efforts to comply with the rules.

The Finance Bill 2023 introduced two new Sections – 194BA for TDS on winnings from online games for online intermediaries, and 115BBJ for computation of taxes for those who earn income from winnings of online games

“Whatever are the net winnings, when you withdraw that money the tax will be on that. TDS was previously on each winning of INR 10,000 or more, so some of the companies were keeping the winning amount below INR 10,000. So that we have removed, there is no threshold for TDS,” revenue secretary, ministry of finance Sanjay Malhotra said.

The online gaming industry that has produced unicorns such as Dream11, MPL, and Games24X7, has seen rapid growth in the user base over the past few years.

According to a report by gaming and interactive media-focused VC fund Lumikai, the number of gamers in the country rose 12% to 507 Mn by March 2022 (24% were paying users) from 450 Mn in March 2021.