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Background:
Section 194BA has been introduced after Section 194B under the Income Tax Act 1961 to tax winnings from online games.
As per section 194BA of the Income Tax Act, 1961, TDS is required to be deducted by the person responsible for paying income earned by the other person from net winnings from online games. No threshold has been set for such income earned and TDS is to be deducted on each withdrawal from the online gamming app.
Applicability of Section 194BA: 1st April 2023
Rate of TDS: TDS is to be deducted at the rate of 30% on the net winnings from online games.
Who is required to deduct TDS:
TDS is required to be deducted by the online gamming application from the winnings earned by the user of the application from the winnings from online games.
When to deduct TDS
TDS is to be deducted from each winning withdrawn from the application by the user.
The manner of computation of net winnings has been prescribed in Rule 133 of the Income Tax Rules, 1962 vide notification no. 28/2023 dated 22nd May 2023.
CBDT wide Circular No. 5 of 2023 issued guidelines for the purpose of removal of difficulties with the provisions of the said section.
A – (B+C)
A: Amount withdrawn from the user account
B: Aggregate amount of non-taxable deposit made in the user account by the owner of such account during the financial year, till the time of such withdrawal; and
C: Opening balance of the user account at the beginning of the financial year
How to deduct TDS in case of winnings in kind
In such cases, the person responsible for paying shall, that before releasing the winning, ensure that the tax has been paid in respect of such winnings by the deductee and submits the proof of payment to the deductor.
Form 26Q also has included provisions for reporting such transactions under section 194BA of the Act (vide Notification no. 28/2023 dated 22nd May 2023).
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