Ref/Opinion/SG/TDS

Registered A.D.

February 15, 2020

To,

Superlative Gaming Pvt. Ltd. “Company”

3rd Floor, Tower A, KoCreate,

Tapasya Towers, Noida- Greater Noida Expy

Subarea, Sector 126, Noida, Uttar Pradesh - 201303

 

Ref: OPINION IN RESPECT OF TDS POLICY

Sir,
 

You have sought an opinion in respect of legality of TDS policy to be adopted for your operations. Based on the discussions with Mr. Rohan Parulaekar (Director of the Company), below are the facts summarized:–

i. Any Indian resident above the age of 18 can register himself on your website and create a login for playing the game of Poker online. Appropriate KYC of the user is done on the website (Identity verification, PAN, Bank account details and address proof).

ii. Company maintains two wallets for each player. ‘Money wallet’, which is used for money transaction between player and the company. ‘Chip Wallet’, which is used by the player for playing the game. “Play Chips” are the chips in Chip Wallet used for Playing.

iii. Player can transfer the amount from his bank account to Money wallet as a “Deposit” to start playing the game.

iv. Once the Deposit is received from the registered player, Company transfers the equivalent Play Chips to the Chip Wallet which is the virtual wallet used by the player to play different events / tournaments on the website.

v. Any win amount by the player is only credited to the Chip Wallet in form of Play chips

vi. Once the player decides to withdraw the play chips from Chip Wallet, he places the request for withdrawal. The equivalent rupee amount is then transferred from Chip wallet to the Money wallet, after deducting TDS (Player can continue to hold money in his Money wallet) and then from Money wallet to the registered bank account of the player.

vii.As per the Website Policy, “Game” begins when the Play chips are credited to the Chip Wallet of the player and “Game” ends when the player places the request for transfer from Chip wallet to the Money wallet or 31st March of the financial year, whichever is earlier.

viii. “Winning = Total Withdrawals (including the fresh withdrawal request) – Total Deposits (at the time of withdrawal) in a particular financial year, 1st April – 31st March and “Payment” means when the amount is transferred to the Money wallet of the Player. TDS is deducted only on the winning amount. (d) export the Software to any country (whether by physical or electronic means);

 

Queries pertaining to the above mentioned facts are as under:-

A. Whether the point of TDS deduction followed by the Company is appropriate as per the Income tax laws in force ?

B. Whether the amount on which TDS is deducted by the company is appropriate as per the Income tax laws in force ?

C. What is the applicable rate of TDS as per the Income tax laws ?

 

Our response to the above-mentioned queries is as under:-

That, the basic concept of TDS aims to collect tax from the very source of income i.e. a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

That, in the present case as per the law laid under section 194B of the Income Tax Act, 1961 regarding the operations carried out by your company i.e. card game, crossword puzzles and other games etc. comes directly under the purview of section 194B of the Act. Therefore, SG is liable to deduct TDS @ 30% on withdrawal of winning amount more than Rs.10,000/-. Whereas in pursuance of the Official Gazette of India dated 01/08/2019 the TDS so deducted shall be charged with a surcharge @ 1.2% under the header of Education-Cess as provided under Part II of The Finance (No. 2) Act, 2019 [No. 23 of 2019]. Hence, the total tax to be deducted at source comes down to a tune of 31.2%.

That, TDS can only be charged on the income credited to the player generated from the operations conducted by your company, therefore, it can only be levied on the net winning amount accrued with the player at the point of it being drawn/credit to the player in terms of real money at the exclusive disposal of the player. Therefore, TDS shall be charged on the net winnings of a session i.e. Net winning at the time when withdrawal request is placed from Chip wallet to Money wallet.

That, considering the fact that the term “winning” and “game” has not been defined in the statute, therefore, it is left to the dealer i.e. “Company” to interpret the same and it is open to be interpreted commercially, therefore, net winning must include gross winnings in a particular session less the deposits made by the player at the starting of the game as adopted by you in your TDS policy.

That, the books of accounts pertaining to TDS shall be closed at the end of the financial year, therefore, game shall be considered to be over on the date of last withdrawal of the total winning amount made in the financial year or on 31st March of every year assuming that a withdrawal request is placed by the player.

That, you, the deductor shall deposit the TDS with the prescribed government authority on or before 7th day of each month for the TDS deducted in the preceding month except for the case of month of March of every financial year, TDS shall be deposited on or before 31st of March as per [Challan No. ITNS.281].

Therefore, in view of the abovementioned facts and circumstances, I, am of the opinion that the current TDS Policy is legally sound. However, the final applicability of rates of TDS and Cess payable thereon shall be revised in a timely manner in accordance by the changes made by the amendments to the applicable law in force.

I, hope to satiate your query.

Opined accordingly.

(Advocate)

Sd/-

Sushrut Joshi