Online gaming platforms are not allowed to deduct tax at source on withdrawals made by players, as long as the withdrawal amounts are less than Rs.100 per month and meet certain criteria, according to the Central Board of Direct Taxes (CBDT) said in a set of guidelines issued on Monday.

According to a statement from the Department of Taxation and Customs (CBDT), the guidelines were designed to eliminate the burden on taxpayers.

Net winnings under ₹100 a month won’t be taxed at the time you withdraw it, but if you withdraw more than that in the same month or the next month or at the end of the tax year, the tax will be deducted.

In addition, to qualify for this concession, CBDT clarified in the guidelines that the tax director is required to pay the difference if the user account balance is insufficient to cover the tax liability when the deduction is made.

The concession is proposed as a practical response to the large number of players who play with very small amounts and withdraw very small amounts, which could lead to a significant tax deduction at source for the online gaming company.

If an online gaming company pays any income in the form of winnings to any person in the financial year under section 194BA, then the company should deduct the income tax from the net amount of winnings in the user account.

If the funds in a user account are used to purchase an in-kind item and given to the user, then the winnings are treated as net cash winnings and tax is deducted at the source. If the winnings are entirely in cash or partially in cash and partly in cash but the part of the cash is not enough to satisfy the obligation to deduct tax, then the gaming company must ensure that tax is paid on the net cash winnings before releasing them.

In addition, according to the guidelines, a deposit in a user account must be made from income that has already been taxed or must be tax-free. If a user borrows money and deposits it in their user account, the guidelines explain, it is considered a tax-free deposit.

A bonus, referral bonus, incentive etc. is provided to the user by an online game intermediary. These are to be treated as taxable deposits. The taxable deposit increases the balance in the user account and cannot be deducted in net winnings calculation as only the non-taxable deposit can be deducted, as explained in the guidelines.

Credit: Mint