Guidelines for removal of difficulties in provisions for deduction of tax on
winning from online gaming – CBDT Circular No. 5 of 2023


A new Section 115BBJ was introduced through the Finance Act, 2023 along with the introduction of Section 194BA for the purpose of deduction of tax on winning from online gaming. Earlier, Section 194BA was to come into effect from 01.07.2023. However, after the assent of Lok Sabha to the finance bill, the date of applicability of section 194BA becomes 01.04.2023.

About section 194BA of the Act

Any person responsible for paying to any person any income by way of winnings from any online game during the financial year shall deduct income-tax on the net winnings at the rate of 30% at the end of financial year or at the time of withdrawal of such amount as the case may be.

About Circular 5 of 2023

Central Board of Direct Taxes (CBDT) has authority to issue guidelines for the purpose of removal of difficulties faced by the taxpayers with the prior approval of the Central Government. Accordingly, CBDT issued the guidelines via Circular 5 for the removal of difficulties faced by the Assessees.

Guidelines issued by the CBDT

Question 1: There are multiple wallets under one user. How “net winnings” is to be computed with respect to multiple wallets of one user


  • User account shall include every account of user, by whatever name called, which is registered with online gaming intermediary and where any taxable deposit, non-taxable deposit or the winning of the user is credited and withdrawal by the user is debited.
  • Thus, each wallet which qualifies as user account shall be considered as user account for the purposes of computing net winnings.
  • If any deductor is having multiple platforms and it is not technologically feasible for him to integrate multiple user accounts across platforms, then tax is required to be deducted for each platform separately.
  • Further, it has been also clarified that transfer of amount from one user account to another user account, maintained with the same online gaming intermediary, of the same user shall not be considered as withdrawal or deposit.
  • However, if the deductor is deducting tax for each platform separately, transfer from one user account to another user account under same online gaming intermediary across platforms shall be considered as withdrawal or deposit for the purpose of calculation of net winnings.
Net winnings for the purpose of calculating tax required to be deducted under section 194BA of the Act shall be calculated as under:Net Winnings = A-(B+C), whereA= Amount withdrawn from the user accountB= Aggregate amount of non-taxable deposits made in all of the user accounts under one TANC= Opening balance of the user account at the beginning of the financial year

Question 2: If a user borrows some money and deposits in his user account, will it be considered taxable deposit or non-taxable deposit?


  • For non-taxable deposit it is necessary that the amount deposited by the user is not taxable i.e., it is from already taxed income or it is not chargeable to tax.
  • In a case where user borrows the money and deposit in his user account, it shall be considered as non-taxable deposit.

Question 3: How will bonus, referral bonus, incentives etc. be treated?

  • Bonus, referral bonus, incentives etc. are given by the online game intermediary to the user. They are to be considered as taxable deposit under Rule 133. The taxable deposit will increase the balance in user account and is not allowed to be deducted in calculation of net winnings as only non-taxable deposits are allowed to be deducted.
  • Thus, any deposit in the form of bonus, referral bonus, incentives etc. would form part of net winnings and tax under section 194BA of the Act is liable to be deducted at the time of withdrawal as well as at the end of the financial year.
  • Some deposit could be money equivalent too like coins, coupons, vouchers, counters etc. In such a situation the equivalence in money of such deposit shall be considered as taxable deposit and would accordingly form part of balance in user account.
  • However, in cases where some incentives/bonus which is credited in user account only for the purpose of playing and they cannot be withdrawn or used for any other purposes. Such deposits shall be ignored for calculation of net winnings. However, person liable to deduct tax under section 194BA of the Act must keep separate accounts of such deposits.
  • Further, if and when these incentives/bonuses are recharacterized and they are allowed to be withdrawn, they would be treated as taxable deposit at the time when they are recharacterized. Thus, they will become part of net winnings in the year of recharacterization.

Question 4: At what point we consider that amount has been withdrawn?


  • When the amount is withdrawn from the user account to any other account, it shall be considered as withdrawal. With respect to deductor, any account of user which is not registered with the online game intermediary (for which he is a deductor) is an account which is not a user account and any transfer from user account to such account is a withdrawal.
  • When in consideration of amount in user account, some coupons etc. are issued for purchase of goods or services, or some item in kind is issued, that will also be considered as withdrawal. It is the duty of the person who is required to deduct tax at source under section 194BA of the Act to ensure that the tax, as required to be deducted, is deducted at source under section 194BA, before issuing such coupons or items in kind.

Question 5: There are a large number of gamers who play with very insignificant amount and withdraw also very small amount. Deducting tax at source under section 194BA of the Act for each insignificant withdrawal would increase compliance for tax deductor. Can there be relaxation to ease compliance?


In order to remove difficulty in deducting tax at source under section 194BA of the Act for insignificant withdrawal, it is clarified that tax may not be deducted on withdrawal on satisfaction of all of the following conditions, namely: –

  • Net winnings comprised in the amount withdrawn does not exceed Rs.100 in a month;
  • Tax not deducted on account of this concession is deducted at a time when the net winnings comprised in withdrawal exceeds Rs. 100 in the same month or subsequent month or if there is no such withdrawal, at the end of the financial year; and
  • The deductor undertakes responsibility of paying the difference if the balance in the user account at the time of tax deduction under section 194BA of the Act is not sufficient to discharge the tax deduction liability calculated in accordance with Rule 133.

Question 6: When the net winnings is in kind how will tax deduction under section 194BA operate?


  • It may be clarified that where money in user account is used to buy an item in kind and given to user then it is net winnings in cash only and the deductor is required to deduct tax at source under section 194BA of the Act accordingly.
  • Where the winning of the game is a prize in kind, then provision of sub-section (2) of section 194BA of the Act will operate. According to this where the net winnings are wholly in kind or partly in cash, and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the net winnings.
  • In these situations, the person responsible for paying, shall, before releasing the winnings, ensure that tax has been paid in respect of the net winnings. In the above situation, the deductor will release the net winnings in kind after the deductee provides proof of payment of such tax.
  • In the alternative, as an option to remove difficulty if any, the deductor may deduct tax under section 194BA of the Act and pay to the government. In the form 26Q the deductor will need to show this as tax deducted by him on net winnings under section 194BA of the Act.

Question 7: How will the valuation of winnings in kind required to be carried out?


The valuation would be based on fair market value of the winnings in kind except in the following cases:

  • The online game intermediary has purchased the winnings before providing it to the user. In that case the purchase price shall be the value for winnings.
  • The online game intermediary manufactures such items given as winnings. In that case, the price that it charges to its customers for such items shall be the value for such winnings.

It is further clarified that GST will not be included for the purposes of valuation of winnings for TDS under section 194BA of the Act.

Question 8: These guidelines have been issued after 1.4.2023 while the law has come into effect from 1.4.2023. Will there be any relaxation on penal consequences in the intervening period i.e. between 1.4.2023 and the date on which the Rules I guidelines are issued?


Taxpayers were expected to deduct tax at source under section 194BA even before issuance of the Rule 133 or this guidance. It is expected that they have carried out that responsibility. However, if there is a shortfall in deduction of tax due to time lag in issuance of Rule 133 or this Circular, for the month of April, 2023 that shortfall may be deposited with the tax deduction for the month of May 2023 by June 2023. In that case there will not be any penal consequences.

Virendra Vikram, Tax Associate, SW India