Online Gaming: 28% GST Applicable On Entry-Level Value, Irrespective Of 'Skill' Or 'Chance"

Players are now required to pay GST on full value of their initial purchase of the in-game currency
GST on online gaming
GST on online gaming

The Finance Ministry on Wednesday notified amendments to the goods and service tax (GST) rules about online gaming and casinos. Players are now required to pay GST on full value of their initial purchase of the in-game currency. Simply put, the individual will pay Rs 28 of the first Rs 100 spent in the game, which is 28 percent.

Under the GST regime, online games are differentiated between skills and chance. A game of skill requires the expertise and experience of the player, where a game of chance is mere betting or gambling. However, in case of tax payable, rates will be equally applicable to both types.

A second setback to gaming industry?

Recently, the Supreme Court stayed Karnataka High Court’s order in the matter of online gaming company GamesKraft. In May, the High Court had stayed show caused notice (SCN) for deposit of GST due totaling Rs 21,000 crore. It held that online ‘games of skill’ like rummy are not taxable as betting or gambling under the GST Act.

The company had questioned the September 23, 2022 show cause notice issued by the Directorate of GST that alleged it for evading GST at the rate of 28% on the entire sum paid by the players for playing the game on its platform.

The company was paying GST at 18% only on the platform and not on the entire money pooled in by the players to play rummy. It had contended that rummy being a game of skill cannot be brought under the definition of betting and gambling.

As of now, the activity of online money gaming will be taxed on the total amount paid or payable to or deposited with the supplier, by or on behalf of the player, irrespective of whether the game is based on skill, or chance, or both.

Initial reaction to GST on gaming

Finance Minister Nirmala Sitharaman in July announced the decision of the GST Council to impose a 28 percent tax on online gaming, casinos and horse racing. The decision then had led to uncertainty among the industry players, who were worried that the move will potentially destroy online and real-money gaming in India.

Also to limit participation of the players, gamers are supposed to pay a 30 percent of TDS in case they win more than Rs 10,000 in a game. This made the imposition of 28 percent tax an ‘industry-killer’ move to them.

In his frustration, former Shark Tank Judge Ashneer Grover on social media said, “RIP - Real money gaming industry in India. If the govt is thinking people will put in Rs 100 to play on Rs 72 pot entry (28 per cent Gross GST); and if they win Rs 54 (after platform fees) - they will pay 30 per cent TDS on that - for which they will get a free swimming pool in their living room come the first monsoon - not happening!”

According to media reports, the decision was met with outrage from gaming industry bodies such as All-India Gaming Federation (AIGF) and Federation of Indian Fantasy Sports (FIFS). They believed that the gamers will not be able to bear such increase in cost and will move to black market operations.

What will be the impact?

After receiving clarity from the recent amendments, industry players have less ambiguity around the value to be taxed. Players have been told that the entire tax will be collected at entry level only, and no tax will be applicable on winnings used further in the game. However, tax charged will not be returned in case the players receive a cash refund.

Despite the clarity, the move to tax online gaming is not welcomed by many players because it comes at a time when India has started to develop a market for online gaming. CEO of IndiaPlays, Aaditya Shah said that this will reduce the expansion of gaming companies by a significant margin. Industry experts argue that skill based gaming should not be grouped with betting.

CEO of All India Gaming Federation, Roland Landers claims the government’s move to wipe out the entire gaming industry and result in job losses. “The only people benefitting from this will be anti-national illegal offshore platforms,” he said.

When announcing the GST rule for gaming, Sitharaman had said that the aim is not to kill any industry and all businesses will be kept alive. But as of now, the majority of the industry players see the measure as anything but helpful.

Revenue Secretary Sanjay Malhotra finds the taxation measure worth the cost. In an interview to The Economic Times, he said that the revenue from the gaming industry was Rs 1,700 crore in 2022-23. “If the volumes remain the same, our estimate is that it would be 10 times the volume we got last year, which should be about Rs. 15,000-20,000 crore,” he said.

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