80 Online Gaming Companies to be issued GST Evasion Notice

A Senior Government Official said that approximately 80 online gaming companies are likely to face tax notices for alleged GST evasion of Rs.10,000-12,000 crore.

The latest action follows a change in GST rates for gaming companies, which will take effect on October 1. A 28% GST has been levied on the total bet placed at the entry level for each gaming session.

“The investigation wing (of the) Directorate General of GST Intelligence (DGGI) is in the process of issuing notices to gamers operating in India and abroad based on new estimates. The new estimates bring the total evasion to more than 31,000 crore”, according to the cited official.

These gaming companies allegedly avoided paying the 28% tax on their gross gaming revenue by betting with real money.

“Notices are being issued for tax demand of Rs.22,000 crore, and the rest is in process,” said the official.

This includes a 21,000 crore fine imposed in September 2022 on Bengaluru-based online gaming company Gameskraft Technology. This was the largest such claim in indirect taxation history.

The notice, however, was quashed by the Karnataka High Court, and the revenue department challenged the court’s decision.

The Supreme Court stayed the High Court ruling earlier this month and decided to hear the case later this month or early next month. The Supreme Court’s decision is expected to set a precedent for future investigations into online gaming.

Aside from online platforms, the DGGI is allegedly cracking the whip on casino operators for failing to pay taxes.

Last week, Delta Corp was served with a tax notice for Rs.11,139 crore, plus interest and penalties, for allegedly failing to pay GST on the gross bet value. According to the company, it will exhaust all legal options to challenge the action and proceedings.

“Notices have been issued for failure to pay tax on gross gaming revenue. As a result, clarity is required for the notices of cases currently being investigated and whether those will be based on the entry-level face value bets,” the official cited above stated.

The new rule specifies that a tax will be levied on money paid by users to play online games, with no distinction made between skill and chance games. In most cases, this is a source of contention. The new rule also defines “online gaming money” to include both skill and chance-based games.

Online gaming is defined as “the provision of a game over the internet or an electronic network, including online gambling.”

“There could be a separate notification in this regard, outlining the changes effective from October 1,” said the official.

Despite opposition from a few states, including Goa, Sikkim, and Delhi, the GST Council imposed the highest tax without a vote in July because the majority of states agreed.

Following that, the proposed amendment to the Central GST Act was approved by Parliament. Some states have made changes to their laws. According to the official, many of them are expected to do so through ordinance before the October 1 deadline.