The online gaming sector is a rapidly growing industry that has potential of contributing significantly to the country’s goal of becoming a USD 1 trillion digital economy, generating substantial employment, and fostering innovation, a report said.

Regulation of online gaming will not only open up economic opportunities but also address various social issues, a report titled ‘Online Gaming in India: The Taxation Quandary’ by Primus Partners said.

Announcements in Union Budget 2023-24 are positive for the sector as it has addressed the persistent ask to incorporate the offset of losses in the calculation of gains from online games for income tax, it said.

A pertinent issue relating to the implementation mechanism proposed in the Union Budget for TDS (Tax Deducted at Source) on online games has been highlighted in the report.

“The issue has arisen due to amendments to section 194B under which online gaming is currently covered from April 1, 2023 and the separate provision on online gaming i.e section 194BA coming into force from July 1, 2023, leading to an anomaly,” it said.

It would be ideal to streamline the applicability of the amendments for “online game” and establish a singular effective date of April 1, 2023, it said, adding, alternatively, the current tax regime could be continued for the period between April 1, 2023 to June 30, 2023, to eliminate any discrepancies in interpretation.

The recurrent developments will also lead to higher costs for the industry resulting in unnecessary expenses that will be difficult to bear for several smaller and mid-size gaming companies, the report said.

On the GST front, the report said evidence from countries where the sector has developed to show the GGR (Gross Gaming Revenue) tax model enables the industry to flourish.

“Levying GST on the total face value would be a departure from established practices, besides making the sector unviable. The recent changes in TDS on income from the prize pool in online gaming without any threshold should be considered by the GST Council,” it said.

Online gaming is a rapidly growing industry which is expected to grow at a CAGR of around 27 per cent over the next five years in India, it said, adding, the sector holds a huge potential to boost India’s GDP and is anticipated to be a significant job generator, with the ability to add more than 1 million jobs by 2030.

“A robust and enabling regulatory framework for a dynamic sector like online gaming would ensure a responsible, transparent and safe environment for all,” said Primus Partners India CEO Nilaya Varma.

The online gaming sector holds tremendous potential if it is encouraged with the right regulatory support from the government and a growth-friendly tax regime, he added.

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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)