Rule 135: Online gaming net winnings and withdrawal calculations
Rule 135 calculates net winnings from online games. The annual income calculation and the first-withdrawal, later-withdrawal and year-end TDS calculations use different variables, so a single withdrawal balance is not enough to determine every amount.
Official notified Income-tax Rules, 2026Need advice on Rule 135?
This article is for general information. Read the official Rules and applicable Act amendments, including the Taxation and Other Laws (Amendment) Act, 2026. If you need professional advice for your situation, contact Bizeneed.
On this page
- Bare law
- Annual net winnings: withdrawals plus closing balance
- First withdrawal and the zero floor
- Later withdrawals avoid counting previously taxed winnings twice
- Year-end TDS includes the closing balance
- Multiple accounts and payments outside the account
- Restricted bonuses need a separate classification
- Key takeaways
- Practical checklist
- FAQs
- Glossary
- Official sources
Bare law
Rule 135 - Calculation of net winnings from online games for purpose of section 194(1)[Table: Sl. No. 5]
(1) Net winnings from online games during the tax year, for the purposes of section 194(1)[Table: Sl. No. 5], shall be calculated using the following formula:— Net winnings = (A+D) - (B+C) Where,— A = aggregate amount withdrawn from the user account during the tax year; B = aggregate amount of non-taxable deposit made in the user account by the assessee during the tax year; C = opening balance of the user account at the beginning of the tax year; and D = closing balance of the user account at the end of the tax year.
(2) Net winnings comprised in the first withdrawal during the tax year, for the purposes of section 393(3)[Table: Sl. No. 2], shall be calculated using the following formula,:— Net winnings = A - (B+C) Where,— A = amount withdrawn from the user account; B = aggregate amount of non-taxable deposit made in the user account by the owner of such account during the tax year, till the time of such withdrawal; and C = opening balance of the user account at the beginning of the tax year.
(3) 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.
(4) Net winnings comprised in each subsequent withdrawal during the tax year, for the purposes of section 393(3)[Table: Sl. No. 2], shall be calculated using the following formula:— Net winnings = A - (B+C+E) Where,— A = aggregate amount withdrawn from the user account during the tax year till the time of subsequent withdrawal including the amount of such subsequent withdrawal; B = aggregate amount of non-taxable deposit made in the user account by the owner of such account during the tax year, till the time of such subsequent withdrawal; C = opening balance of the user account at the beginning of the tax year; and E = net winnings comprised in the earlier withdrawal or withdrawals computed under sub-rule (2), or under this sub-rule, during the tax year till the time of subsequent withdrawal, if tax has been deducted in accordance with the provisions of section 393(3)[Table: Sl. No. 2] on winnings comprised in such withdrawal or withdrawals.
(5) Net winnings in the formula given in sub-rule (4) shall be zero, if the sum of amounts B, C and E is equal to or greater than the amount A.
(6) Net winnings comprised in the user account at the end of the tax year, for the purposes of section 393(3)[Table: Sl. No. 2], shall be calculated using the following formula:— Net winnings = (A+D) - (B+C+E) Where,— A = aggregate amount withdrawn from the user account during the tax year; B = aggregate amount of non-taxable deposit made in the user account by the owner of such account during the tax year; C = opening balance of the user account at the beginning of the tax year; D = closing balance of the user account at the end of the tax year; and E = net winnings comprised in the earlier withdrawal or withdrawals computed under sub-rule (2) or (4), during the tax year, if tax has been deducted in accordance with the provisions of section 393(3)[Table: Sl. No. 2)] on winnings comprised in such withdrawal or withdrawals.
(7) Net winnings in the formula given in sub-rule (6) shall be zero, if the sum of amounts B, C and E is equal to or greater than the sum of amount A and D.
(8) For the purposes of this rule,— (a) "non-taxable deposit" means the amount deposited by the user in his user account and which is not taxable; (b) "taxable deposit" means any amount deposited in the user account, which is not a non-taxable deposit and includes any amount paid directly to the user not through the user account; and (c) "withdrawal" means any amount withdrawn by the user from any user account.
(9) For the removal of doubts, it is hereby clarified that— (a) the user account shall include every account of user, by whatever name called, which is registered with the online gaming intermediary and where any taxable deposit, non-taxable deposit or the winnings made by the user is credited and withdrawal by the user is debited; (b) whenever there is payment to the user in kind or in cash, or partly in kind and partly in cash, which is not from the user account, the provisions of this rule shall apply to calculate net winnings by deeming that the money equivalent to such payment has been deposited as taxable deposit in the user account and the equivalent amount has been withdrawn from the user account at the same time and shall accordingly be included in amount A; (c) 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; (d) whenever there are multiple user accounts of the same user, transfer from one user account to another user account, maintained with the same online gaming intermediary, of the same user shall not be considered as withdrawal or deposit, as the case may be, for the purposes of deducting tax under section 393(3)[Table: Sl. No. 2]; (e) whenever there is taxable deposit in the form of bonus, referral bonus, incentives, promotional money or discount, by whatever name called, and such deposit can only be used for playing the online games and not for withdrawal or any other purposes, such deposit shall be ignored for the purposes of calculation of net winnings and shall not be included in amount B or C or D; and (f) whenever any bonus, referral bonus, incentives, promotional money or discount, by whatever name called, is not considered as part of amount B or C or D under clause (e) and subsequently they are recharacterised and allowed to be withdrawn, they shall be deemed as taxable deposit at the time of such recharacterisation and it shall be deemed that the equivalent amount has been deposited in the user account at that time.
Rule breakdown
Annual net winnings: withdrawals plus closing balance
For the annual section 194 calculation, net winnings are (A + D) − (B + C): annual withdrawals plus closing balance, less annual non-taxable deposits and opening balance.
Classify deposits correctly. A taxable incentive is not automatically a non-taxable deposit merely because it appears as an account credit.
First withdrawal and the zero floor
For the first withdrawal TDS calculation, net winnings are A − (B + C). Here A is that withdrawal, B is non-taxable deposits up to that time, and C is the opening balance. If B + C equals or exceeds A, the rule sets net winnings to zero.
For example, with ₹12,000 withdrawn, ₹8,000 non-taxable deposits and ₹1,000 opening balance, net winnings for this calculation are ₹3,000. This example calculates the base, not the tax rate.
Later withdrawals avoid counting previously taxed winnings twice
The later-withdrawal formula uses aggregate withdrawals to that point and subtracts B + C + E. E is qualifying earlier net winnings on which tax has been deducted under the identified provision.
Do not subtract every earlier withdrawal as E. For example, aggregate withdrawals of ₹20,000, B of ₹8,000, C of ₹1,000 and eligible E of ₹3,000 produce ₹8,000 of net winnings in this calculation.
Year-end TDS includes the closing balance
The year-end formula is (A + D) − (B + C + E), with annual aggregates and eligible previously taxed winnings. It has its own express zero rule when the deductions equal or exceed A + D.
Reconcile the annual income calculation separately: its formula has no E subtraction. E prevents repeat deduction within the TDS calculation rather than removing those winnings from annual income.
Multiple accounts and payments outside the account
The rule requires the stated aggregation of accounts, deposits, withdrawals and balances. Transfers between the same user’s accounts with the same intermediary are not withdrawals or deposits for the specified TDS purpose.
A payment in cash or kind outside the account is treated as an equivalent taxable deposit and simultaneous withdrawal. Record its money equivalent; an off-account payment is not excluded just because the ledger did not show an ordinary withdrawal.
Restricted bonuses need a separate classification
A qualifying bonus or promotional credit usable only for playing, not withdrawal or other purposes, is ignored in the specified calculation and excluded from B, C and D.
If subsequently made withdrawable, it becomes a deemed taxable deposit at recharacterisation. Preserve evidence of the original restrictions and the later change.
Key takeaways
Four distinct calculations
Separate annual income from the three TDS stages.
E has conditions
Only qualifying previously taxed net winnings belong in E.
Include relevant account activity
Aggregate as prescribed and account for cash or kind payments.
Restricted bonus treatment can change
Recharacterisation as withdrawable changes the treatment.
Practical checklist
- Maintain opening, closing, deposit and withdrawal ledgers.
- Identify previously taxed net winnings separately.
- Document restricted and withdrawable bonus balances.
- Reconcile annual income and TDS computations.
Avoid
- Do not subtract all earlier withdrawals as E.
- Do not ignore payments in kind or outside the account.
FAQs
Is every earlier withdrawal deductible as E?
No. E is the defined earlier net winnings on which tax has been deducted under the specified provision.
Does a transfer between my accounts with the same intermediary itself count as a withdrawal for TDS?
The stated same-user, same-intermediary transfer is not treated as a withdrawal or deposit for that purpose.
Can a payment in kind outside the account escape the calculation?
The rule deems the money equivalent to be a taxable deposit and simultaneous withdrawal.
Are all bonuses ignored permanently?
No. The exclusion has use restrictions, and a subsequent change permitting withdrawal triggers the stated taxable-deposit treatment.
Glossary
- E
- The defined earlier net winnings on which the required tax deduction has occurred.
- Non-taxable deposit
- A user deposit that is not taxable, as defined in the rule.