GST Rules & TDS Rules
UPSPORTS VISION PRIVATE LIMITED (“UVPL”)
Action Points – Income Tax
A snapshot of the manner of implementing the TDS provision contained in Section 194BA of the Income-tax Act, 1961 (“IT Act”) in the online games to be offered by UVPL is as under:
1. Determination of “Person Responsible for Paying” u/s. 194BA of the IT Act
The “person responsible for paying” is the person who is liable to pay the winnings i.e., the online gaming intermediary. An “online gaming intermediary” has been defined in section 194BA to means an intermediary that offers one or more online games. Accordingly, since UVPL shall be the online game intermediary for the online games to be offered, the liability to deduct TDS u/s. 194BA of the IT Act, subject to fulfilment of other conditions, shall be of UVPL.
2. Meaning of the term “online game” u/s. 194BA of the IT Act
“Online game” is not defined in section 194BA of the IT Act itself but imports the definition of the term provided in section 115BBJ. Section 115BBJ deals with the taxation of winnings from online games in the hands of the user. Therein, “online game” has been defined to mean a game that is offered on the internet and is accessible by a user through a computer resource including any telecommunication device.
3. Meaning of the term “net winnings” u/s. 194BA of the IT Act
Net Winnings of a user shall be determined after deducting the amount paid by the user as entry fee. That is, winnings = buy-out less buy-in.
4. Meaning of the term “user account” u/s. 194BA of the IT Act
User account of a user means all the accounts of a user, including deposit escrow account and winning escrow account, with the UVPL.
5. Meaning of “net winnings in the user account” u/s. 194BA of the IT Act
The set off of the winnings and losses from across the games played by the users on the online gaming platform of UVPL until the event of TDS, is allowed under the provisions of the IT Act.
6. Meaning of the term “withdrawal” u/s. 194BA of the IT Act
“Withdrawal” means withdrawal of the sums by the user from his/ her user account to his/ her bank account.
7. Event of deduction of TDS u/s. 194BA of the IT Act
At the time of withdrawal(s) by the user from his/ her user account during the financial year. If there is no withdrawal during the financial year or there are sums remaining in the user account at the end of the financial year, then at the end of the financial year.
8. Computation of “net winnings” for the purpose of deduction of TDS u/s. 194BA of the IT Act
The rules for the computation of “net winnings” for the purpose of deduction of TDS u/s. 194BA of the IT Act have not been prescribed yet. In our view, until the rules are prescribed, the following mechanism may be adopted:
At the time of withdrawal(s) during the FY:
Net winnings* = A – B – C – D, where
A = Aggregate withdrawals by the user from user account during the FY till the time of concerned withdrawal
B = Aggregate amount deposited by the user in the user account during the FY, till the time of concerned withdrawal
C = Balance in the user account at the beginning of FY
D = Net winnings computed at the time of earlier withdrawal(s) on which tax has been deducted u/s 194BA during the FY
At the end of the FY:
Net winnings* = A – B – C – D + E, where
A = Aggregate withdrawals by the user from user account during the FY
B = Aggregate amount deposited by the user in the user account during the FY
C = Balance in the user account at the beginning of FY
D = Net winnings computed at the time of withdrawal(s), if any, on which tax has been deducted u/s 194BA during the FY
E = Balance in the user account at the end of the FY
*Any balance in the user account like bonus, incentives, promotional money, discount, referral bonus and the likes paid by the online gaming intermediary to the user in his/ her user account and which can only be utilised to participate in an online game, shall not be taken into account to determine net winnings.
Once the rules for the computation of “net winnings” u/s. 194BA are prescribed, UVPL must compute its TDS liability as per those rules from 1st April 2023 until the date of the rules coming into effect as against the TDS liability. If there is a shortfall i.e., if lesser amount of TDS liability has been discharged, then UVPL shall have to make good the shortfall. Further, since the rules were not prescribed until a given date, no interest liability/ penalty can be imposed on UVPL for short deduction of TDS until that given date. In case of an excess TDS deduction, the same can be adjusted against the future TDS liability.
9. TDS in case of net winnings wholly in kind or partly in cash, and partly in kind
UVPL to ensure that the tax has been paid on the net winnings before the releasing the winnings to the user. This can be done either by requiring the recipient to pay tax on the net winnings (as advance tax) and produce evidence thereof, or by the UVPL itself by deducting TDS on the net winnings after grossing up.
Action Points – Goods and Services Tax Act
Assumption: The games offered on UVPL’s platform are games of skill and hence, not restricted in India in terms of the Public Gambling Act 1867. A snapshot of the manner of implementing the taxation provision of CGST Act 2017 in the games offered by UVPL is as under:
10. On what quantum is GST payable and what will be the rate of GST?
All Games at UVPL platform are ‘pay-to-play’ games that involve multiple players paying entry fee to enter into a tournament, which is further bifurcated into platform fees (i.e. fees retained by UVPL) and contribution towards tournament prize. GST 28% shall be payable on deposited amount.
Being game of skill, GST shall not be payable on contribution towards prize pool money. In this context, Schedule III of the CGST Act lists down the activities or transactions which shall not be treated as either supply of goods or services. Para 6 of Schedule III specifies actionable claims other than Lottery, Betting, and Gambling. Since the present game involves game of skill and is not lottery, betting or gambling, it will be covered by para 6 and not liable to GST.
11. Location where GST registration shall be taken and GST shall be paid
GST registration shall be taken in all States where UVPL has offices. UPVL office is located in Maharashtra.
Further, GST in respect of deposited amount shall be paid from the State where head office is located.
12. Place of Supply in case of service of providing online platform by UVPL.
Place of supply is a crucial factor which needs to be determined, as the State Government where the place of supply is will ultimately receive the GST revenue.
As per section 12(2) of the IGST Act, place of supply shall be the location of the player where the address on record exists. If the address details are collected from players in full prior to first game, the same can be the basis for determining place of supply. If only PIN code and geo location is taken, it needs further examination as to whether partial address on record is sufficient for determining place of supply.
In case address on record is not available, the location of supplier shall be the place of supply.
13. When will GST invoice be raised and GST liability be paid to the Government?
GST liability shall be paid every month. The due date for filing Form GSTR-1 (details of outward supplies) is 11th of next month and Form GSTR-3B is 20th of next month.
Each of the incentive schemes need to be evaluated once they are formulated, to review for compliance with section 15(3) of the CGST Act and to reduce it from the value for paying GST. Once schemes are formulated, same can be evaluated for claiming reduction in GST liability.
Conditions for discount shall be communicated prior to claiming reduction in tax liability, such conditions need to be examined to determine the correct tax liability, i.e. whether the discount (cashback which represents the maximum discount) can be utilized against service fee only and in no case shall exceed the service fee amount, reason for offering such discount, capping of discount, etc.
