With the advent of GST the tax regime in India has seen a sea change. Many taxes levied by the centre or by the states have been subsumed in the GST. The indirect taxation in its new ‘AVTAR’ has covered almost all economic activities under its umbrella unless the same is specifically excluded from the ambit of the GST. In the regime the taxable event is ‘SUPPLY’ for a consideration by a person in the course or furtherance of business. The term supply is inclusive and it also includes deemed and declared supply under the schedule I and II of the Act. If the definition of the supply is properly analysed almost all transactions against consideration, which is done in the course or furtherance of business is taxable. In this paper we will try to examine taxability of online games in the background of GST laws.
As the taxable event is supply of Goods or services we will examin this term in the context of GST Act, 2016. Section 7 of the CENTRAL GOODS AND SERCIVE TAX ACT, 2017 elaborated the term “SUPPLY” and the same read as follows:
“SECTION 7– Scope of supply- (1) For the purpose of this Act, the expression supply includes:
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, (Refer below) made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II .
(2) Notwithstanding anything contained in sub-section (1),–
(a) activities or transactions specified in Schedule III ; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of service.
Now a days online games like tambola, ludo , chess , rummy, bridge and so many other games has gained unprecedented popularity. In most of the games players are asked either to buy tickets or deposit/pay a fixed sum for the game. There is a online platform which conducts the game and receive consideration for the same. So, there is a consideration and a platform is providing “service” to the participants in different connotations and therefore there is a supply of services and the event is taxable.
1. LIABILITY TO PAY GST:
The liability to pay GST is on the supplier of goods or services. So in case of online games it is the platform who conducts the game is treated as supplier and hence liable to pay tax. The platform which conducts the game has to follow all the provisions related with the supplier such as registration if required and thereafter filing the periodic returns and submitting all the required documents with the concerned department. However, in certain circumstances GST is required to be paid by the recipient of goods or services but online games do not fall in that category and hence it is the “supplier” of the online games who is liable to be taxed.
2. THRESHOLD EXEMPTION LIMIT:
Every supplier whose aggregate turnover is a financial year exceeds 20 lakhs rupees is required to be registered. So, in case of online games as well if the proceeds exceed 20 lakhs rupees, the platform is to be registered. There are certain cases where registration is compulsory irrespective of the consideration received in a particular financial year such as persons making supply inter-state taxable supply, casual taxable persons, persons required to pay tax under reverse charge, non-resident taxable person making taxable supply or electronic commerce operators etc. As till date platforms conducting online games are not included in the category of compulsory registration, they can enjoy the threshold exemption and thereafter follow the procedure prescribed under law.
3. VALUE OF SUPPLY:
As per section 15 (1) of the CGST Act the value of supply of goods or services shall be transaction value, which is the price actually paid or payable for the said supply of goods or services. This is the most contentious aspect while ascertaining the taxable amount. In the online games the platform charges a fixed amount from the player out of which a certain portion is plough back to the player in form of incentives, prizes, rewards etc. Let us understand this aspect numerically. Say the platform is given Rs. One lakh by the participants collectively out of which approx. Rs. Sixty-seventy thousand is returned to the participants in the form of prizes, incentives, rewards etc. So, in the hands of platform only Rs. Thirty thousand remains. Now the question is what should be the taxable value for the purpose of payment of GST?
The answer lies in section 15 itself, which reads as follows:
“Section 15- Value of taxable supply-(1) the value of a supply of goods or services or both shall be transaction value, which is the price actual paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply and not related the price is the sole consideration for the supply ”
The legislature intentionally used priced actually paid or payable should be the value of supply. If practical interpretation of this section is done the value of supply should be the value which is actually paid or payable i.e. in our example Rs. Thirty-Forty Thousand. This is the amount actually paid to the platform for conducting and organising the game and it includes all the incidental expenses for running the game. The amount which was not “actually paid” to the platform should not be taxed. Till date there is no clarity in the statute or rules in this regard for the platforms conducting online games and it should be clarified by the government earliest to avoid confusing and multiplicity of litigation.
4. ONLINE GAMES PORTAL FROM OUTSIDE INDIA:
This is another and interesting aspect. Section 1 of the GST Act mandates that the Act is applicable to the whole of India without any exception. So liability to pay tax is fasten only on the persons supplying goods or services located in India. If “supply” from a platform located outside India is made unfortunately as on today supplier cannot be taxed. Now a days many platforms are offering online games and earning huge revenue but as the are not located in India they simply escape from the taxation net. This is pure technological aspect and has to be dealt technologically but at present the platform located outside India cannot be taxed in India.
When any new law emerges, it takes its own time for maturity. GST is a new law and there are many new areas for which law and rules are silent. Over the period of time things will be clear and dust will be settled down.