The Indian online gaming and casino industry has experienced exponential growth in recent years, with a surge in digital connectivity and smartphone penetration. However, the introduction of the Goods and Services Tax (GST) has brought about significant changes in the industry’s financial dynamics and operational mechanisms. This article aims to scrutinize the impact of GST on India’s online gaming and casino sector, highlighting the challenges and opportunities it presents.
Indirect Tax
Why online gaming covered under the ambit of GST??
Here are some points which could benefit both players and the industry as a whole:
> It will generate revenue for the government.
> It will help to reduce online gaming companies to exploit players.
> It will increase transparency in the industry.
How it is treated as supply under GST Law??
As we all know the first & foremost condition of application of GST is the transaction will be “treated as supply”.
So let’s discuss how it is covered under supply.
Important change has been brought by amendment to Schedule III of CGST Act 2017. Paragraph 6 of Schedule III which earlier read as “Actionable claims, other than lottery, betting and gambling” has been amended by substituting the words “specified actionable claims” for the words “lottery, betting and gambling“.
New Amendment
50th GST Council meeting held or 11th July 2023 passed a crucial decision or the online gaming industry, casinos and the horse racing businesses. The GST Council with the help of the Group of Ministers, made recommendations on the imposition of GST on online gaming, as well as putting an end to the debate over “games of skill or chance.” 28% GST shall apply to online gaming, casinos and horse racing on the full face value. An amendment must be made to GST law for including this under its scope.
Rule 31B of CGST Rules 2017: Value of supply in case of online gaming including money gaming
The value of supply of online gaming, including supply of actionable claims involved in online money gaming, shall be the total amount paid or payable to or deposited with the supplier by way of money or money’s worth, including virtual digital assets, by or on behalf of the player, provided that any amount returned or refunded by the supplier to the player for any reasons whatsoever, shall not be deductible from the value of supply of online money gaming.
As per the notification, online gaming, along with horse racing and casinos, will be treated as “actionable claims” under the GST Act, similar to lottery, gambling and betting. The GST Council, earlier this year, announced its decision to impose a 28% GST on the amount being paid at the entry level for online gaming.
*Definition of Actionable Claim:
In the context of GST, an actionable claim refers to a claim to any debt, whether secured or unsecured, excluding lottery, betting, and gambling.
Let’s see Practical Example to understand:
Impact of 28% GST Rate on a Playing User’s Winnings in Online Gaming
Assumptions:
- Initial Investment (Entry fee) for both Player 1 and Player 2: INR 100
- Total Entry Amount for both Player 1 and Player 2: INR 200
- Platform Fee: 15%
- Service Tax (before GST): 18%
Before 28% GST
| Particulars | Amount |
| Contribution | 100 |
| Total Entry Amount (Assuming 2 Players) | 200 |
| Platform Fee (15%) | 30 |
| Service Tax (18% on 30) | 5.4 |
| *Net Winnings
(200-30-5.4) |
164.6 |
*Assuming Service tax (18%) not included in Platform fees
After 28% GST:
a. On Platform fees:
| Particulars | Amount |
| Contribution | 100 |
| Total Entry Amount (Assuming 2 Players) | 200 |
| Platform Fee (15%) | 30 |
| GST (28%) | 8.4 |
| Net Winnings
(200-30-8.4) |
161.6 |
b. On Full Stakes:
| Particulars | Amount |
| Contribution | 100 |
| Total Entry Amount (Assuming 2 Players) | 200 |
| Platform Fee (15%) | 30 |
| GST (28%) | 56 |
| Net Winnings
(200-30-56) |
114 |
Conclusion of above illustrations:
As seen from the above, with the proposed change, the GST component has now increased 10 times approx. (from INR 5.4 to INR 56), and the amount left for winners has reduced to INR 114 from the present INR 164.6. This could lead to a potential 30% reduction in prize pool. After further deduction of TDS under income tax on the net winnings in the range of 30%, the amount left with the winner would not be significant enough. This would certainly lead to lower user turnout.
In his frustration, former Shark Tank Judge Ashneer Grover on social media said:
“RIP – Real money gaming industry in India. If the government 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.”
Real Story – Practical example of GST on online gaming (Dream 11 app):
> My Good friend Aryan is a big cricket enthusiast and to test his Cricket knowledge & estimation skills he downloaded “Dream 11 App” and login to set the bet in the Cricket Final World cup 2023 “India Vs Australia”.
> But while depositing the initial amount of RS 100 for betting, he was getting net 78.12 Rs. instead of full 100. Remaining 21.88 Rs reflecting as discount credit points in the wallet. My friend noticed it and told me that Dream 11 is taking too much commission from October onwards.
> And as a CA Final student I just clarified that it’s not the commission. It is the GST amount of 28% on initial deposit which is charged by the Government as per the New Rule 31B of CGST Act, 2017.
Screenshot of Dream 11 App below:
Retrospective Taxation:
“As the decision has been made in the GST Council that “From October 1, this 28 per cent GST (on online gaming) was to be implemented. But tax notices for the last six years calculated at a much higher rate have been sent to online gaming companies.”
Notices served to Companies:
> Online gaming company Delta Corp was recently issued a notice of INR 16,800 Cr in tax arrears, an amount is more than double the company’s last decade’s revenue.
> Dream11, on the other hand, has been issued a tax demand of INR 25,000 Cr, while its last known public valuation is INR 60,000 Cr. Previously, the largest such demand of INR 21,000 Cr was sent to Games Kraft Technology.
Following are the points of discussion on the retrospective taxation:
> Revenue Secretary Sanjay Malhotra underlined that it is not retrospective taxation, as liabilities from these companies already existed. “There was some discussion on it (GST notices issued).
> Certain members did raise this issue and they were informed that the law has not been amended retrospectively, so these liabilities were already existing… they were already attracting (GST of 28%) by virtue of entry in betting and gambling.
In my opinion, following will be the Impact on economy for Retrospective imposition of Tax:
> It will be a significant loss not only for the online gaming industry but also for India’s aspirations to lead the technology revolution of the 21st
> It will deter foreign investments, hinder the growth of a progressive entrepreneurial ecosystem and stifle India’s potential as a globalized and progressive nation.
Conclusion:
The uniform tax structure could attract more foreign investments into the Indian online gaming and casino industry.
Chartered Accountants play a vital role in guiding companies through these challenges, offering tax planning strategies, advising on ITC availability, and helping businesses stay compliant with new regulations.
Moreover, the transparent tax regime could boost the industry’s credibility and trust among stakeholders, promoting responsible gaming.
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Article Author: Nitin Satani with Inputs by Gunjan Gupta and Supervision by CA Keshav Gupta.
