A pertinent issue relating to the implementation mechanism proposed in the Union Budget for TDS (Tax Deducted at Source) on online games has been highlighted in the report.
According to a report titled ‘The Taxation Quandary of Online Gaming in India’ by Primus Partners, the burgeoning online gaming industry has the potential to play a significant role in helping the country achieve its target of becoming a USD 1 trillion digital economy, while also creating numerous job opportunities and promoting innovation. The report further suggests that regulating the online gaming sector would not only unlock economic prospects but also tackle various societal concerns.
The sector received a boost from the announcements made in the Union Budget 2023-24, as they have effectively addressed a long-standing demand to allow the offset of losses when calculating gains from online games for income tax purposes, as per a statement.
The report has brought attention to a significant concern regarding the proposed implementation mechanism for Tax Deducted at Source (TDS) on online games in the Union Budget.
According to the report, the anomaly has emerged due to the modifications made to section 194B, which presently encompasses online gaming from April 1, 2023, and the new provision on online gaming, i.e., section 194BA, which will take effect from July 1, 2023.
The recommendation is to simplify the implementation of the amendments related to online games by setting a uniform effective date of April 1, 2023. However, if this is not feasible, an interim option could be to extend the existing tax system until June 30, 2023, to avoid any confusion or divergent interpretations.
According to the report, the ongoing advancements will inevitably result in increased expenses for the gaming industry, which could be particularly challenging for smaller and medium-sized companies to manage, ultimately leading to unwarranted financial burden.
The report highlighted that countries with a well-established gaming sector have demonstrated that implementing a tax model based on Gross Gaming Revenue (GGR) can promote growth and sustainability of the industry.
The report pointed out that imposing GST on the entire face value would deviate from customary practices and render the gaming industry impractical. Additionally, the GST Council should take into account the latest modifications in Tax Deducted at Source (TDS) for income from prize pools in online gaming, which now has no minimum threshold.
The online gaming industry in India is experiencing substantial growth and is projected to achieve a compound annual growth rate (CAGR) of approximately 27% over the next five years. The sector is poised to make a significant contribution to India’s GDP and has the potential to create more than 1 million employment opportunities by 2030, making it a vital sector for job creation.
Nilaya Varma, the CEO of Primus Partners India, emphasized the significance of a strong and supportive regulatory structure for the online gaming industry, stating that it is crucial to establish a responsible, transparent, and secure environment for all stakeholders involved.
In addition, the CEO of Primus Partners India asserted that the online gaming industry has immense potential for growth if the government provides it with the necessary regulatory backing and a tax system that fosters expansion.