Budget 2023: Top Six Tax Changes For The Digital Economy

By Meyyappan Nagappan (Partner)

This article was first published in BQ Prime

Here are some notable proposed amendments in the digital space and potential implications and industry takeaways.

The Indian Budget 2023-24 presented earlier today was the final full budget of the Narendra Modi government before the national elections scheduled for early next year. While the amendments proposed by the Finance Bill, 2023 read with the Memorandum to the Finance Bill do not seem to be far-reaching on the whole considering that many items from the industry wish list have been missed out, this article discusses certain notable proposed amendments in the digital space together with potential implications and industry takeaways, though perhaps some of these proposed amendments could have been avoided.

Tightening Of TDS On Gambling

Considering that presently some deductors would seek to avoid TDS under sections 194B and 194BB by splitting a winning into multiple transactions each falling below the prescribed threshold of INR 10,000, the Finance Bill proposes to amend sections 194B and 194BB to: (a) provide that deduction under these sections shall be on the aggregate amount exceeding the threshold during a given financial year; and (b) specifically include “gambling or betting of any form or nature whatsoever” within the scope of section 194B. For many genuine gaming companies, the lack of clarity with respect to the applicability of the INR 10,000 threshold to deduct TDS when making distribution of winnings was a pain point and to that extent the clarity is welcome. It is likely to ensure standardised industry practice and also to prevent huge amounts of winning earned by gamers from escaping taxation. The intent seems to be to cover gambling and betting of all sorts but there appears to be a potential gray area around where online gambling and betting would be covered due to the introduction of new provisions as set out below.

New Provisions Pertaining To TDS, Income Tax On Net Winnings From Online Gaming

Due to the recent rise in the user base for online games and considering the unique nature of such games as being easily accessible over the internet with varied playing and payment options, the Finance Bill seeks to introduce a new section 194BA in the Indian Income Tax Act, 1961 with effect from July 1, 2023, to provide for TDS on net winnings in the user account at the end of the financial year. Further, if there is a withdrawal from the user account during the financial year, tax shall be deducted at the time of such withdrawal on net winnings, as well as the remaining net winnings in the user account at the end of the financial year.

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