The online gaming industry is witnessing rapid growth, offering remarkable potential for contributing to India’s goal of becoming a USD 1 trillion digital economy. The sector is poised to generate substantial employment opportunities, foster innovation, and address various social issues. This article examines the taxation quandary surrounding online gaming in India and discusses the positive impact of recent announcements in the Union Budget 2023-24.
The Taxation Quandary in Online Gaming
Union Budget 2023-24: Impact on Online Gaming
The announcements made in the Union Budget 2023-24 have been well-received by the online gaming sector. The budget has addressed the long-standing demand to incorporate the offset of losses in calculating income tax gains from online games.
TDS (Tax Deducted at Source) on Online Games
The report titled ‘Online Gaming in India: The Taxation Quandary’ by Primus Partners highlights a crucial issue regarding the implementation mechanism proposed in the Union Budget for TDS on online games. This issue arises from amendments to section 194B, which currently covers online gaming from April 1, 2023, and the separate provision on online gaming, i.e., section 194BA, effective from July 1, 2023. This discrepancy has led to an anomaly.
To resolve this, the report suggests streamlining the applicability of amendments for “online game” and establishing a singular effective date of April 1, 2023. Alternatively, the current tax regime could be continued for the period between April 1, 2023, and June 30, 2023, to eliminate any discrepancies in interpretation.
Higher Costs for the Industry
The recurrent developments will result in higher costs for the industry, leading to unnecessary expenses that many small and mid-size gaming companies may struggle to bear.
GST (Goods and Services Tax) and Online Gaming
GGR (Gross Gaming Revenue) Tax Model
The report notes that the GGR tax model has been successful in countries where the online gaming sector has developed, enabling the industry to thrive. Levying GST on the total face value would deviate from established practices and render the sector unviable.
TDS on Income from Prize Pool in Online Gaming
The recent changes in TDS on income from the prize pool in online gaming without any threshold should be considered by the GST Council, the report recommends.
The Future of Online Gaming in India
The online gaming industry in India is expected to grow at a CAGR of above 25% over the next five years. The sector has enormous potential to bolster India’s GDP and is anticipated to be a significant job generator, with the capacity to add lacs of jobs by 2030.
With the right regulatory support from the government and a growth-friendly tax regime, the online gaming sector can unlock its tremendous potential and contribute significantly to India’s digital economy.
Online gaming in India is at a crucial juncture, offering vast potential for economic growth, employment generation, and innovation. The recent announcements in the Union Budget 2023-24 have been a positive step for the sector. However, addressing the taxation quandary and providing a favorable tax regime are critical to unlocking the full potential of this rapidly growing industry. With the right regulatory support and a growth-oriented tax environment, the online gaming sector can thrive and make a significant contribution to India’s digital economy. (Credit: BS)