Gaming Industry Opposes New TDS Policy, GST Still Unclear

EGF, AIGF, and FIFS Join Hands against Tightening of TDS

India’s three major online gaming industry bodies – the E-Gaming Federation (EGF), the All India Gaming Federation (AIGF), and the Federation of Indian Fantasy Sports (FIFS) have sent a joint letter to the Central Board of Direct Taxes (CBDT) urging the Board to reconsider the proposed tightening of TDS (Tax Deducted at Source) policy for online games.

The draft Finance Bill for the upcoming FY 2023-2024 envisages from April 1, 2023, the non-taxable benefit of ₹10,000 to become applicable on an annual basis on the aggregate amount of all winnings for the whole year from lottery, crossword puzzle, card games, and “from gambling or betting of any form or nature whatsoever.”

Moreover, from July 1, 2023, online games will become subject to a newly introduced section 194BA and lose the non-taxable benefit altogether. The change is supposed to set aside online gaming from gambling and betting, but it remains to be seen how borderline online games with gambling elements will be treated.

The letter by the industry bodies to the CBDT expressed their concern that the interim TDS regime between April 1 and July 1 will create a great deal of confusion and a heavy compliance burden, especially for small gaming companies.

Potential Changes to GST Valuation Rules More Worrying for Industry

A previous letter by the three industry bodies, sent to the Prime Minister’s Office (PMO) earlier in February, urged the authorities to keep online gaming separate from casinos, horse races, and lotteries, as the federations worry that clubbing them together in GST treatment can devastate the sector.

Currently, gambling activities attract 28% GST over the full bet value, while online gaming companies pay 18% over their trade margins. A Group of Ministers (GoM) led by Meghalaya Chief Minister Conrad K. Sangma, tasked to examine the GST regime over games, initially proposed all relevant activities to be charged the higher rate over the full transaction value.

“Online gaming has the potential to emerge as the next big new age export economy for India, but imposing 28% GST will prematurely stifle the sector,” commented Saumya Singh Rathore, co-founder of Winzo Games, a Delhi-based gaming company.

“There are many early stage companies in the sector. However, increasing tax rates for the sector will take away companies’ ability to survive. It also affects creators, whose earnings will be stifled,” Rathore added.

The GoM has already submitted a new report, but the last 49th meeting of the GST Council did not discuss the matter, and the uncertainty about the tax burden over the homegrown gaming industry remained.

The Lack of Regulation Favors Offshore Gaming Sites

While the Central Government is still working on implementing national-level regulations for the sector, the increasing tax pressure on Indian companies places them at a growing disadvantage against the competition of offshore gaming sites, which avoid paying taxes in the country.

Regulation is intended to create a safe gaming environment for desi players and an enabling business climate for the local industry, but the rush to raise taxes before supplying regulations may play a bad trick on the sector.