GST Valuation rules on Online Gaming are prospective, says FM Sitharaman

Nirmala Sitharaman, the finance minister, highlighted on Tuesday that the valuation criteria for levying 28% GST on entry-level bets on gaming platforms are effective prospectively.

“An explanation of that levy was made, and it is stated that the tax is 28%. It has been clearly stated to whom it will apply and to whom the incidence will fall. But, on this specific issue of valuation norms, I’d like to state categorically that the valuation rules for excluding winnings are later used. So, I hope there is no mistake about that,” Sitharaman remarked in response to a discussion in the House on the GST (Second Amendment) Bill.

At its August meeting, the GST Council approved a 28% GST on online gaming. “Valuation of supply of online gaming and legitimate claims in casinos may be done by taking into account the amount paid or payable to or deposited with the supplier or on behalf of the player, excluding the amount entered into games based on the winnings of previous games,” the Finance Minister said following the meeting. New valuation rules will come into effect on October 1 due to legal changes.

In other words, if a person bets Rs.1,000 in online gaming or horse racing or buys a Rs. 1,000 chip in a casino, he must pay GST at the rate of 28%. If he wins Rs. 300 and the total amount in the following bet or chip is Rs. 1,300, he will not be obliged to pay GST on the Rs. 300 redeployed winnings. However, if he loses Rs. 1,000 and then places another Rs. 1,000, that is deemed a new bet or chip and will be subject to 28% GST.

Sitharaman’s clarification came on Tuesday after MP Sarmishta Sethi stated that the GST Council had imposed a 28% GST on the full face value of bets placed on online gaming, rather than gross gaming revenue. The decision came into effect on October 1, 2023, with a six-month review.

As a result of the GST Council’s decision, it is necessary to determine whether the amendment is clarifying and so has retroactive application, or whether it should be made applicable only after October 1, 2023. “This is critical for calculating past-period liabilities.” As a result, clarity is required,” she stated.

In response to Sitharaman’s response, Shashi Mathews, Partner at Induslaw, stated that the government’s intention was always to tax at the entrance stage, i.e., when a user makes a deposit. This applies to both the first deposit and any subsequent deposits. It was never intended to levy GST on winnings.

“The valuation rules do the same, and the Finance Minister has only clarified the most recent amendments.” Furthermore, because these restrictions are prospective, they will apply to deposits made after October 1st. “I hope a circular is issued as soon as possible,” he added.