India’s Online Gaming Faces ₹1 Lakh Crore GST Hurdle: What’s Next?

The Indian GST authorities have issued show cause notices worth approximately ₹1 lakh crore to online gaming companies for tax evasion. This enforcement action has sparked significant attention in the industry, especially given the recent amendments to the GST law. These amendments, effective from October 1, 2023, require overseas online gaming companies to register in India and clarify that a 28% Goods and Services Tax (GST) will be levied on the full value of bets placed on online gaming platforms​​.

Among the companies served with notices, Dream11 and casino operator Delta Corp are notable mentions. GamesKraft, another prominent player in the industry, received a notice in September 2022 for an alleged GST evasion of ₹21,000 crore. While the Karnataka High Court initially ruled in favor of GamesKraft, the central government filed a Special Leave Petition in the Supreme Court in July, challenging this decision​​.

This enforcement drive is part of a broader strategy by tax authorities to address GST evasion in the online gaming sector. The Directorate General of GST Intelligence (DGGI) is set to launch investigations against over 100 gaming firms, focusing on those involved in real money gaming. The total money involved in these cases is estimated to be over ₹33,000 crore. This move follows a Supreme Court decision that stayed a Karnataka High Court ruling, which had quashed a ₹21,000 crore GST demand notice on Gameskraft​​.

The GST Council’s decision has led to a significant shift in the industry’s landscape. Previously, games of skill were treated differently from games of chance, with the former being taxed at 18% GST on the commission earned and the latter at 28% GST on the gross gaming revenue. However, the DGGI’s issuance of a ₹21,000 crore show cause notice to Gameskraft for alleged tax evasion on a betting amount of ₹77,000 crore between 2017 and June 2022 marked a turning point. This case led to a reevaluation of the tax treatment of games of skill and chance, resulting in the current uniform 28% GST rate​​.

This rigorous enforcement has had a significant impact on the online gaming industry in India. Many companies are now facing increased scrutiny and the possibility of heavy tax liabilities. The industry, once considered a “sunrise sector,” is experiencing challenges, with companies like MPL, Spartan Poker, Quizy, and Fantok either laying off employees or shutting down operations. Gameskraft has also decided to discontinue its fantasy offering, Gamezy Fantasy, amidst these developments​​.

In conclusion, the ₹1 lakh crore GST show cause notices issued to online gaming companies in India mark a pivotal moment in the industry’s regulatory landscape. This crackdown reflects the government’s effort to ensure compliance and proper taxation in a rapidly growing and evolving sector. As the industry adapts to these changes, further legal and operational challenges are expected.



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