Rule 135 — Calculation of net winnings from online games for purpose of section 194(1) [Table: Sl. No. 5]. Made under s.194, s.393 of the Income-tax Act, 2025.
Rule 135 gives effect to Section 194 and Section 393 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) gives the annual formula. Net winnings from online games during the tax year, for section 194(1) [Table: Sl. No. 5], are (A+D) – (B+C), where A is the aggregate amount withdrawn from the user account during the tax year, B the aggregate non-taxable deposit made in the account by the assessee during the year, C the opening balance at the beginning of the year and D the closing balance at the end of the year.
Sub-rules (2) and (3) give the first withdrawal formula for section 393(3) [Table: Sl. No. 2]: net winnings are A – (B+C), where A is the amount withdrawn, B the aggregate non-taxable deposit made during the tax year till the time of withdrawal and C the opening balance; and net winnings are zero if B+C is equal to or greater than A.
Sub-rules (4) and (5) give the subsequent withdrawal formula: A – (B+C+E), where A is the aggregate withdrawn during the year up to and including that withdrawal, B the aggregate non-taxable deposit till that time, C the opening balance, and E the net winnings comprised in earlier withdrawals computed under sub-rule (2) or (4), if tax has been deducted on them under section 393(3) [Table: Sl. No. 2]; net winnings are zero if B+C+E is equal to or greater than A.
Sub-rules (6) and (7) give the year-end formula for the amount remaining in the account: (A+D) – (B+C+E), with the same meanings and D as the closing balance; net winnings are zero if B+C+E is equal to or greater than A+D.
Sub-rule (8) defines non-taxable deposit as an amount deposited by the user in his user account which is not taxable; taxable deposit as any amount deposited in the user account which is not a non-taxable deposit, including any amount paid directly to the user not through the user account; and withdrawal as any amount withdrawn by the user from any user account.
Sub-rule (9) clarifies six things. The user account includes every account of the user, by whatever name called, registered with the online gaming intermediary in which deposits or winnings are credited and withdrawals debited. Where there is payment to the user in kind or in cash not from the user account, the money equivalent is deemed to have been deposited as a taxable deposit and an equivalent amount withdrawn at the same time, and is included in amount A. Where the user has multiple accounts, each is considered and the deposit, withdrawal or balance means the aggregate across all of them; but a transfer between the same user's accounts with the same intermediary is not a withdrawal or deposit for deducting tax under section 393(3) [Table: Sl. No. 2]. A taxable deposit in the form of bonus, referral bonus, incentives, promotional money or discount that can only be used for playing and not for withdrawal or any other purpose is ignored and is not included in amount B, C or D; and if such an amount is later recharacterised and allowed to be withdrawn, it is deemed a taxable deposit at the time of recharacterisation and an equivalent amount is deemed deposited then.
Sections 194 and 393 tax and require deduction on net winnings from online games, but a gaming account is a running balance of deposits, stakes, prizes and withdrawals, and "winnings" cannot be read off any single transaction. This rule builds net winnings out of what can be observed — money in, money out, and the opening and closing balances — so the intermediary can compute at each withdrawal and again at year end. The E term exists so that winnings already subjected to deduction are not counted twice.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Net winnings for the tax year | (A+D) – (B+C) | For section 194(1) [Table: Sl. No. 5]; A withdrawals, B non-taxable deposits, C opening balance, D closing balance | Sub-rule (1) |
| Net winnings in the first withdrawal of the year | A – (B+C) | For section 393(3) [Table: Sl. No. 2]; zero if B+C is equal to or greater than A | Sub-rules (2) and (3) |
| Net winnings in each subsequent withdrawal | A – (B+C+E) | E counts only earlier withdrawals on which tax has been deducted under section 393(3) [Table: Sl. No. 2]; zero if B+C+E is equal to or greater than A | Sub-rules (4) and (5) |
| Net winnings remaining in the account at year end | (A+D) – (B+C+E) | For section 393(3) [Table: Sl. No. 2]; zero if B+C+E is equal to or greater than A+D | Sub-rules (6) and (7) |
There is no single net winnings figure. Sub-rule (1) computes the year's chargeable amount, while sub-rules (2), (4) and (6) compute what is caught at each withdrawal and at year end for deduction, and they use different inputs. The E term is conditional: earlier winnings reduce the current computation only if tax has actually been deducted on them under section 393(3) [Table: Sl. No. 2], so an intermediary that failed to deduct earlier cannot use that failure to shrink a later deduction. Only non-taxable deposits enter B — money the user put in that is not taxable — so winnings credited to the account are not deposits and do not reduce anything. A payment made outside the account, in cash or in kind, is not outside the rule either: sub-rule (9)(b) deems it deposited as a taxable deposit and withdrawn at once, and includes it in A. Bonuses locked to play are ignored under sub-rule (9)(e), but the moment they are recharacterised and become withdrawable, sub-rule (9)(f) treats them as a taxable deposit made at that time.
A user opens the tax year with Rs. 5,000 in his account and deposits Rs. 20,000 of his own money during the year, all of it non-taxable deposit. His first withdrawal in the year is Rs. 8,000; since B+C, being Rs. 20,000 plus Rs. 5,000, exceeds A of Rs. 8,000, sub-rule (3) makes net winnings zero and nothing is deducted. He later withdraws a further Rs. 40,000, so A is now Rs. 48,000 against B+C+E of Rs. 25,000, and the net winnings in that subsequent withdrawal are Rs. 23,000 under sub-rule (4).
You meet it inside the gaming platform's deduction at each withdrawal and in the year-end computation the intermediary reports, and again in the user's own return, where the section 194(1) figure is the sub-rule (1) amount.
Net winnings = (A+D) – (B+C)
Net winnings in the formula given in sub-rule (2) shall be zero, if the sum of amounts B and C is equal to or greater than the amount A.
whenever there are multiple user accounts of the same user, each user account shall be considered for the purposes of calculating net winnings and the deposit, withdrawal or balance in the user account shall mean the aggregate of deposit, withdrawal or balance in all user accounts respectively
