Online Gaming Taxation in India: Complete Guide to TDS on Net Winnings Under Section 194BA, Rule 133 and CBDT Circular 5/2023
The online gaming industry has become one of India’s fastest-growing digital economies, but with its growth came significant tax challenges. To bring clarity and plug long-standing loopholes, the government introduced an entirely new tax regime for gaming platforms and players—primarily through Section 194BA, Rule 133, and Section 115BBJ of the Income-tax Act. Today, “online gaming taxation” has become one of the most searched terms on the internet, with thousands of users trying to understand why their AIS shows unexpected TDS entries, year-end deductions, and net winnings calculations that differ from what they believe they earned. This article serves as a complete and authoritative guide, covering every aspect of online gaming taxation, including CBDT’s crucial Circular No. 5/2023 dated 22 May 2023 that explains the new regime in detail.
Why the New Online Gaming Tax Regime Was Introduced
Before 1 April 2023, online gaming income was broadly covered under Section 194B, which applied to winnings from lotteries, crossword puzzles, gambling, betting, and “other game of any sort.” The threshold of ₹10,000 was frequently bypassed by splitting payouts into multiple small payments. The earlier law also taxed winnings on a “gross basis,” which was unsuitable for modern gaming platforms where users frequently deposit money, withdraw partially, reinvest winnings, and receive bonuses or promotional chips. To address these issues comprehensively, the government introduced three pillars of the new regime:
1. Section 194BA – TDS on “net winnings” in online games.
2. Rule 133 – The computation mechanism for “net winnings.”
3. Section 115BBJ – Final taxation of online gaming income at a special rate.
The shift from “gross winnings” to “net winnings” is the core of the new system and applies only to online gaming transactions. Section 194B continues to apply to offline and online gambling, betting, horse racing, or lottery winnings.
What Are “Online Games”?
CBDT Circular No. 5/2023 clearly defines “online game” as:
Any game played on the internet where a user makes a deposit, participates, and may win rewards.
This includes real-money gaming apps, skill-based games, card games, fantasy sports, e-sports, rummy platforms, online Ludo tournaments, and similar games.
Net Winnings: The Heart of Online Gaming Taxation
Rule 133 provides the statutory formula for computing “net winnings.”
Net Winnings = (Amount Withdrawn + Closing Balance) – (Opening Balance + Deposits Made)
CBDT Circular 5/2023 explains the components clearly:
1. Opening Balance – Balance in the user’s account at the start of the period.
2. Deposits Made – Actual money deposited by the user.
Bonuses, referral credits, and promotional chips are NOT deposits.
3. Closing Balance – Balance in the user’s account at the end of the period.
4. Amount Withdrawn – Withdrawals made during the year.
Receipts such as bonuses, promotion credits, incentives and free chips increase the “closing balance,” thereby impacting net winnings, but they are not to be treated as deposits for Rule 133. This interpretation is specifically clarified in the circular to ensure a uniform computation across platforms.
When Does TDS Apply Under Section 194BA?
There are two moments when TDS is deducted:
1. At the time of each withdrawal, but only to the extent the withdrawal represents net winnings.
2. At year-end on 31 March, on net winnings that remain unwithdrawn.
This year-end TDS is the reason many players are seeing unexpected TDS entries in their AIS even if they never withdrew any money. As long as the user has “net winnings” as per Rule 133, TDS gets deducted on 31 March.
CBDT Circular No. 5/2023 – Key Clarifications
This circular is the backbone of India’s online gaming taxation implementation. Important points clarified include:
1. Separate account requirement – Platforms must maintain a user-wise ledger showing deposits, withdrawals, and balances.
2. Bonuses not treated as deposits – They affect closing balance but not deposits.
3. Negative net winnings – Cannot reduce earlier TDS deducted. They can be adjusted while computing total tax liability in the ITR but not for TDS.
4. Multiple user accounts – If a user has multiple accounts on the same platform, all must be consolidated for net winnings calculation.
5. Withdrawal into another user account – Still treated as withdrawal of net winnings.
6. Cross-game movement – Transfer of winnings from one game to another within the same platform is not a withdrawal.
7. Deposits refunded by the platform – Not treated as withdrawals.
8. TDS rate of 30% – Without surcharge and cess.
The circular ensures consistency and prevents platforms from adopting varying interpretations.
A Practical Example with Rule 133
A user deposits ₹1,000 on 1 September 2025. By 30 September, the balance grows to ₹5,000. This reflects net winnings of ₹4,000.
On 1 October, the user withdraws ₹3,000, entirely representing net winnings. TDS is ₹900, and the user receives ₹2,100.
After withdrawal, the balance becomes ₹2,000. If the user loses ₹1,900 before year-end, the closing balance becomes ₹100.
Year-end computation:
0 + 100 – 2000 – 0 = –1,900
Negative net winnings are ignored for TDS, but they reduce taxable net winnings in the ITR.
This example illustrates why many users see TDS in AIS even when they ended the year with almost no gains.
Tax on Gaming Income Under Section 115BBJ
While TDS under 194BA is at 30% without surcharge, the final tax under 115BBJ is:
Net Winnings × 30% + Surcharge (if income > ₹50 lakh) + 4% Cess
Thus, high-income individuals may face additional tax at return filing.
Online Gaming vs Gambling: A Crucial Distinction
The confusion arises because users think online gaming is taxed like lottery or gambling.
But the law treats them separately:
• Online gaming → Sections 194BA + 115BBJ (net winnings)
• Gambling, lottery, horse racing, betting → Sections 194B + 115BB (gross winnings)
This confusion leads to AIS mismatches and scrutiny notices.
Common Mistakes Leading to AIS Mismatches
1. Repeated small withdrawals that include net winnings.
2. Ignoring the 31 March year-end TDS.
3. Incorrect PAN linked with gaming apps.
4. Claiming TDS refund but not reporting gaming income.
5. Assuming that losses in later months cancel earlier TDS.
How Online Gaming Income Must Be Reported in the ITR
CBDT requires that online gaming winnings must be disclosed under Income from Other Sources.
Players must:
• Report total net winnings under 115BBJ.
• Match AIS entries with platform statements.
• Avoid claiming refund if net winnings exist.
• Retain screenshots and statements for reply to any notice.
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This article covers:
online gaming taxation, TDS on online gaming, Section 194BA, Rule 133 computation, net winnings taxation, online gaming TDS rules, CBDT Circular 5/2023, tax on gaming apps, ITR reporting of gaming income, AIS mismatch issues, compliance for online gamers, taxation of gaming platforms, differences between 194BA and 194B, final tax under Section 115BBJ.
Conclusion
Online gaming taxation in India has undergone a total transformation. With Section 194BA, Rule 133, and the clarifications issued under CBDT Circular 5/2023, every player must now understand how net winnings are computed and when TDS applies. Year-end TDS, bonus treatment, and net winnings logic often surprise users, but these rules are now firmly embedded in the tax system. As long as taxpayers report their net winnings honestly and reconcile AIS entries with platform statements, they can avoid mismatches, scrutiny notices, and unnecessary refund claims. Understanding the online gaming taxation framework is no longer optional—it is essential for every player in India’s rapidly expanding digital gaming economy
The copy of the Circular is as under:
