Having identified huge tax evasion in the thriving online gaming industry, the tax department wants the winners in such games to use the updated income tax returns (ITR-U) scheme to disclose their incomes and pay the right amounts of taxes with applicable interest.

Central Board of Direct Taxes (CBDT) chairman Nitin Gupta said on Thursday that players associated with just one gaming portal have been found to have netted as much as Rs 58,000 crore in the three years through FY22 as the gross winning amount.

These persons will have the option to pay tax at a marginal rate of 30%, along with interest, without any rebate or deductions, and an additional 25-50% on both the tax and interest, under the scheme. If this window is not used, then the individuals could potentially face prosecution along with hefty penalties.

Gupta also said the CBDT was in the process of issuing a clarification on the applicability of the recently introduced Section 194R of the Income Tax Act, which imposes a tax deducted at source (TDS) liability on banks for loans waived through one-time settlements or other schemes, and incentives extended to large business customers through credit cards.

The tax department is also examining the Supreme Court ruling of Tuesday that held that the 2016 amendment to the Benami transactions law cannot be applied retrospectively.

Talking about the ITR-U scheme, Gupta said so far about 0.1 million ITR-Us have been filed by taxpayers after the scheme was introduced in the 2022 Budget, by paying additional taxes to the tune of Rs 28 crore. He, however, said the scheme has huge potential, as there is a large segment of people who may have knowingly or unknowingly not paid taxes due on gains from various activities including gaming, betting, lottery, etc.

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According to the changes to the I-T Act through the Finance Act 2022, which allows a taxpayer to revise his return/file return for the past two assessment years — 2020-21 and 2021-22 (the financial years 2019-20 and 2020-21). Accordingly, taxpayers updating returns for FY20 need to pay the tax due and interest along with an additional 50% of such tax and interest. For FY21, the additional amount will be 25% of the tax payable and interest. The gross gaming winning amount is chargeable at 30% tax without any rebate or deduction.

“ITR-U should be utilised by the winners of such games from other gaming portals also, as it would be an efficient provision for them to come forward and pay taxes rather than face the consequences of penalty,” Gupta said.

In a search and survey earlier this year, the income tax department found that the gross winning amount in a gaming portal (run by a Mumbai-based firm) was Rs 58,000 crore between FY20-FY22, but hardly any taxes were paid by the winners. The portal had about 8 million registered players. Gupta did not name the portal.

In a press statement on February 2022, the income tax department said that it conducted search and seizure operations on a business group engaged in gaming activity, and online betting (including cricket betting) on February 15 in 29 premises spread over Mumbai, Delhi, Surat, Jaipur, Pune and Kolkata.

On the applicability of TDS provisions under Section 194 R on various banking transactions, Gupta said, “We will very soon come out with a notification clarifying the position on issues raised by the banks.” The Finance Act 2022 introduced a new section 194R in the Income Tax Act for withholding 10% TDS on benefits or perquisites from non-salary sources.

However, banks have flagged the challenges in implementing the new TDS provisions on loans waived through one-time settlements or other schemes, and sought relief on this front.