What exactly does the term “Tax Deducted at Source” (TDS) mean?
Tax Deducted at Source, also known as TDS, is a method of tax collection used in India. Its purpose is to deduct tax from an individual’s income so that it can be paid to the government.
In India, tax deduction at source (TDS) applies to various payments, including the ones made to independent contractors, professionals, and several other service providers. For example, if an app developer or app publisher is making money from in-app purchases, adverts, or any other sources that are connected to the app in any way, they may be required to pay TDS on the income that they have received. This is because in-app purchases are considered to be part of the app’s overall revenue. Here, we will explain the new rummy TDS deduction rule which has been put into effect since April 2023.
TDS on Winnings
New tax laws will be imposed on online gaming applications beginning April 1st, 2023, in accordance with the Finance Bill passed by the Government of India. Platforms that provide online games are required by law to make a tax deduction at the source, abbreviated as “TDS,” either when a withdrawal is made or when the fiscal year comes to a close. TDS is levied at the rate of 30% on a player’s net winnings. In this context, “net winnings” refers to the amount of money that a player takes home after deducting the amount paid as entry fees over the course of a year.
Net winnings = Total withdrawals – Total deposits*
(during a financial year i.e. starting 1 Apr and ending 31 Mar)
* Total deposits = deposits during the FY + opening balance of the FY
Any net winnings that were subject to TDS at the time of any previous withdrawal will likewise have a reduction applied to them when calculating net winnings at the time of withdrawal.
Let’s take a look at a few scenarios to grasp how the above TDS rule applies:
Scenario 1:
There is a ₹10,000 in your account on 27 Mar 2023. You chose to withdraw it on 4 Apr 2023.
On 1st Apr, 2023, ₹10,000 is considered as your year opening balance considered as a deposit for TDS calculation.
Since your net winnings are ₹0, no TDS is applicable.
| Total withdrawals (A) | ₹10,000 |
| Total deposits (B)(same as opening bal.) | ₹10,000 |
| Net winnings (A-B) | ₹0 |
| TDS applicable | ₹0 |
Scenario 2:
Your opening balance is ₹3,000 as on 1 Apr, 2023 and you made a deposit of ₹7,000 on 3 Apr, 2023.
Total Deposits (B)
| Opening bal.(As on 1 Apr, 2023) | ₹3,000 |
| Deposit(Made on 3 Apr, 2023) | ₹7,000 |
| Total deposits (B) | ₹10,000 |
Suppose you withdraw ₹5,000 on 5 Apr, 2023, here’s how the TDS calculation works.
| Total withdrawals (A) | ₹5,000 |
| Total deposits (B) | ₹10,000 |
| Net winnings (A- B) | -₹5,000 |
| TDS applicable(As net winnings is -ve) | ₹0 |
In this case, no TDS will be applicable since the net winnings are negative.
Scenario 3
When your net winnings (incl. the withdrawal amount) are more than zero, 30% TDS applies to the net winnings during the time of withdrawal.
Consider that in a fiscal year, you made a total deposit of ₹7,000 and also had an opening balance of ₹3,000 at the beginning. Hence, your total deposit stands at ₹10,000 (₹7,000 + ₹3,000).
Total Deposits (B)
| Opening bal. | ₹3,000 |
| Deposit | ₹7,000 |
| Total deposits (B) | ₹10,000 |
In the same fiscal year, on 22 Apr 2023, you initiated a withdrawal of ₹5,000. On 29 Apr, 2023, you withdrew an additional ₹7,000. Therefore, with this withdrawal, your cumulative withdrawal stands at ₹12,000 (₹5,000 + ₹7,000).
Total Withdrawal (A)
| Withdrawal on 22 Apr, 2023 | ₹5,000 |
| Withdrawal on 29 Apr, 2023 | ₹7,000 |
| Total withdrawals (A) | ₹12,000 |
In this instance, the TDS will be imposed at the rate of 30% on the net winnings (A-B) of ₹2,000 (i.e., ₹12,000 – ₹10,000), which will be taken into account while processing your withdrawal request for ₹7,000. On the other hand, there would not be any TDS deducted from the remaining balance of ₹5,000. The total amount that would be credited to the bank account is ₹6,400 after the TDS deduction of ₹600.
| Withdrawal amount | ₹7,000 |
| Non-taxable amount | ₹5,000 |
| Taxable amount(Net winnings : A-B ) | ₹2,000 |
| TDS @30% on taxable amount | -₹600 |
| Amount credited to your bank account | ₹6,400 |
FAQs
What is the new TDS rule for real money online gaming?
According to the recently implemented rule, a tax deduction at source (TDS) must be taken either from the total net winnings at the time of withdrawal or from the total balance that can be withdrawn when the fiscal year ends.
What is the current rate of taxation that applies to earnings from online games?
Beginning on the first of April in 2023, a tax deduction of 30% will apply to any and all earnings derived from playing online games.
