When Prime Minister Narendra Modiji dedicated an entire day to engaging with and understanding the challenges being faced by top gamers of the country, it underscored his vision and commitment to support this emerging sector and position India as a global gaming hub.
The sector is seen as having massive potential but continues to face challenges, including the issue of taxation. The Supreme Court’s recent intervention, staying the retrospective GST demand notices, is a significant step forward; however, the industry’s challenges are far from over. A pressing concern remains: the complex taxation landscape, particularly the TDS rules, may limit the sector’s potential.
The TDS provision under Section 194BA, introduced in April 2023, requires gaming companies to withhold tax on net winnings when users withdraw funds throughout the year. While this may sound straightforward, it creates significant challenges for both players and the gaming industry, when players end up with negative net winnings, yet are still subjected to tax deductions based on their earlier withdrawals. This scenario creates a tedious process for users, who must wait for months to reclaim taxes withheld on winnings that never become payable by the users.
It is important to note here that gaming is rapidly gaining popularity among women in India. Remarkably, of the over 600 million gamers in the country, nearly 2 in 5 are women. Furthermore, a report reveals that the growth of the female workforce in gaming has outpaced the overall sector, with an impressive 103.15% CAGR. This trend not only highlights the industry’s rapid expansion but also showcases its gender-inclusive nature, empowering women gamers and creators economically within the technology sector.
According to estimates, approximately 20 crore users – nearly 40% of online gaming users, including women- could be impacted by this issue annually, generating significant refund claims for amounts as low as INR 100, INR 200, or even less. The processing of such small refunds often incurs costs far greater than their value, and can be very resource-intensive for both gaming companies and tax authorities.
Also, this would mean that users will have lesser resources to play games, eventually leading to reduced TDS collection. It thus becomes imperative that gaming companies be allowed to adjust previously withheld taxes when users face negative net winnings, or its negative winnings turn negative. Further, the companies should be able to offset the withholding tax paid earlier against the withholding tax liability on other payments/credits in accordance with the provisions of the law.
In addition to the net winnings issue, another significant complication stems from the requirement to deduct TDS on winnings lower than INR 100. Many players earn small amounts — INR 1, INR 3, INR 10 — but are still subjected to filing TDS returns. For gaming companies, this creates an additional compliance point, by making them process numerous small amounts that generate minimal revenue but demand considerable resources.
It may, therefore, be advisable that a threshold limit of INR 100 be introduced on net winnings below which TDS need not be deducted to avoid the administrative hassles and promote the best use of resources of both tax authorities and online gaming companies.
The issue of taxation has added to the concerns of gaming companies in India which has led to investments falling by over 90%, from $1.2 billion in 2021 to just $16 million in 2023. Apart from this, illegal offshore platforms, which are not subject to such taxes continue to lure Indian consumers. Their advertisements often attract users by claiming that they won’t be subject to any TDS or GST when they play on those platforms. Apart from putting legitimate Indian companies at a serious disadvantage, such tax arbitrage in favour of illegal offshore platforms also creates concerns around money laundering, fraud, and consumer protection.
While gaming as a sector has emerged as one of the biggest contributors to the exchequer, such additional compliance requirements could make the ease of doing business more complex for them. A de-minimis threshold for TDS would significantly reduce the compliance burden, especially for smaller winnings. Additionally, clear and comprehensive regulations are essential to protect players and stimulate innovation within the sector.
Easing such concerns can be a small but important step in ensuring their continued growth which can then further enhance the contribution of the sector to the exchequer. It can also go a long way in making online gaming more conducive for women to participate in large numbers and encourage them to explore careers in game design, development, streaming, and content creation.
As we await the next budget with bated breath, there is an opportunity to consider such small changes in the policy approach which can have a significant impact on the business environment in general and there cannot be a better time to act than now.
(The author is Member of Parliament, Lok Sabha and Member, Parliamentary Standing Committee on Education, Women, Children, Youth and Sports; Views expressed are personal)
