Understanding Tax on Online Game Winnings
Tax on online game winnings has evolved sharply under the digital economy. The Finance Bill, 2025 (Clause 194, S. No. 5) introduces key changes that replace Section 115BBJ of the Income-tax Act, 1961. This blog simplifies the shift and what it means for players and platforms.
What the 1961 Act (Section 115BBJ) Said
Section 115BBJ, inserted via Finance Act 2023, had specific provisions for taxing net winnings from online games:
- Flat 30% tax (plus surcharge and cess) on net winnings.
- Applicable from 01.04.2024.
- TDS under Section 194BA applied to withdrawals or year-end balance.
- Platforms had to deduct TDS and report winnings in Form 26Q/26QF.
Problem: The term “net winnings” was complex to compute and created compliance challenges.
What the 2025 Bill Proposes (Clause 194)
Clause 194 of the Income-tax Bill, 2025 shifts from net winnings to a simplified gross receipt-based regime:
| Aspect | Income-tax Act, 1961 | Draft Income-tax Bill, 2025 |
|---|---|---|
| Tax Section | 115BBJ | Clause 194 (S. No. 5) |
| Tax Basis | Net winnings | Gross receipts |
| Tax Rate | 30% + surcharge/cess | 30% flat (no detailed clause yet on surcharge) |
| TDS Compliance | u/s 194BA | Revised TDS sections expected |
| Administrative Clarity | Moderate | Expected to improve |
Legal and Compliance Implications
Clause 194 seems to be drafted to reduce grey zones and simplify collections, especially post the rise in winnings via real-money gaming apps.
Why This Matters: Platform and Player Impact
- Players lose the benefit of loss offsetting; entire receipt becomes taxable.
- Platforms may need to upgrade backend systems to track gross winnings and ensure proper TDS.
Expert Tip
“Gaming companies must now redesign tax flows. Gross taxation limits customer reinvestment—this impacts lifetime value.
Summary (Google Snippet Friendly)
Clause 194 of the Income-tax Bill, 2025 replaces Section 115BBJ, shifting tax on online game winnings from net to gross receipts. A 30% flat tax now applies on the full amount received, with no deduction for losses.
FAQs
Q1. Is there TDS on online game winnings under the new law?
Yes, though Clause 194 is silent, parallel TDS amendments are expected to align with the new regime.
Q2. Can I claim losses against my winnings?
No. Under the 2025 Bill, the gross amount is fully taxable—loss set-off is not allowed.
Q3. When will this new clause take effect?
Likely from FY 2026–27 onwards.
Final Thoughts
The taxation of online game winnings is no longer just a regulatory formality—it’s now a high-focus compliance zone. At Efiletax, we help players, platforms, and gaming startups stay updated and compliant with the evolving digital tax landscape.