Understanding 28% GST Levy on Online Gaming in India

Introduction: The Goods and Services Tax (GST) is a pivotal taxation mechanism in India that impacts various sectors, including online gaming. In July and August of 2023, the 50th and 51st GST Council meetings respectively brought substantial changes to the taxation landscape of online gaming. These amendments slated the tax at 28%, evoking mixed reactions from stakeholders. This article dives deep into these legislative changes, their impact, and what they signify for the industry.

The 50^th meeting of GST Council which was held on 11.07.2023, took various steps and measures towards trade facilitation and streamlining the GST compliances which, inter alia, included acceptance of report of Group of Ministers on GST on casinos, race courses and online games and deciding rate of 28% thereon. In case of online gaming, there were certain issues involving valuation, place of supply, rate of tax on which industry players raised various concerns including even the danger of players including start ups being getting extinct due to being kept under highest tax slab of 28%, that too on gross value or face value of the transaction. The 51^st Council meeting held on 02.08.2023 primarily discussed about the taxation of casinos, online gaming and horse races. The GST shall be levied on the actionable claims supplied in casinos at the entry level.

GST on online gaming – Key points from 50^th GST Council meeting (11.07.2023)

• GST Council approved the recommendations of Group of Ministers on taxation of online gaming, race courses etc.
• GST shall be applicable on horse races, casinos and online gaming
• GST law shall be amended to include online gaming and horse races in Schedule-III so as to be taxed as actionable claims.
• All such activities shall be taxed at an uniform rate of 28 percent GST
• Tax shall be levied on full face value of chips purchased (casino) or full value of bets placed (horse race, online games) and not on the fees part, if any.
• Online gaming to cover both-games of skills and games of chance with no distinction between them.
• 28% GST on online gaming will not be retrospective.
• Amendment in GST law is imperative which has been done fast at centre. States also need to make amendments so as to make online gaming taxable w.e.f. 01.10.2023 as all the states will have to pass the amendment law.

GST on online gaming- Key points from 51st GST Council meeting (03.08.2023)

• Approval of amendments in CGST Act, 2017 and IGST Act, 2017 including Schedule III so as to provide clarity on taxation of supplies in relation to:
  • Casinos
  • Horse racing
  • Online gaming
• IGST Act to specifically provide for liability to pay GST on suppliers located outside India who supplies online money gaming to any person in India.
• Foreign suppliers shall have to register in India for which separate procedure will be provided, i.e., registration in India will be mandatory for offshore gaming companies.
• GST to be levied on valuation of supply of online gaming and actionable claim in casinos at entry level.
• Games of chance and games of skill to be treated at par for levy of GST. These terms shall be defined in the law.
• Specific rules shall be framed for valuation of supply of online gaming as well as for supply of actionable claim in casino.
• 28% GST will be applicable on the actual cash or equivalent deposits made by players on an online platform to commence a game and not on the winning amounts redeployed.
• The payments received and winnings paid in Virtual Digital Assets (VDAs) by online gaming companies and casinos will suffer GST. This will bring both- overseas and domestic online gaming companies that accept and make payments in VDAs such as crypto currency under GST.
• It is expected that process of amendments and enforcement of levy of GST on online activities shall be complete by 01.10.2023
• The new levy, after required changes are made in the central and state laws, is likely to come into effect from October, 1.

The Council also decided to tax all online gaming activities irrespective of whether such activities are a game of chance on skill. Both types of online games will be treated at par for tax purposes.

Amendment Bills / Acts

Finance Minister has introduced CGST Act (Amendment) Bill, 2023 and IGST Act (Amendment) Bill, 2023 in the Parliament on 11^th August, 2023 to implement decisions of GST Council to levy 28% tax on online gaming. Both the Bills have been passed by the Lok Sabha on same day and later by Rajya Sabha. These have since been enacted as Act Nos. 30 and 31 on 18.08.2023. This will come into effect from a notified date. It provides for defining online gaming, registration and change in scope of supply (Schedule III) etc. Similar changes are stipulated in IGST Act, 2017. It is expected that all the states will also make the necessary amendments in state GST laws in next two months in the ongoing monsoon sessions or by way of as Ordinance on online gaming.

Gist of CGST (Amendment) Bill / Act, 2023

> CGST (Amendment) Bill, 2023 was introduced in Lok Sabha on 11.08.2023 and enacted as Act No. 30 of 2023 on 18.08.2023.

> The Act provides for the following :

• It provides for defining online gaming [section 2 (80A)], online money gaming [section 2 (80B)], specified actionable claim [section 2 (102A)] and virtual digital asset [section 2 (117A)]
• It amends definition of supplier in section 2(105) to provide clarity on who is supplier in case of supply of specified actionable claim
• It provides for mandatory registration of the person for supplying online money gaming from a place outside India to a person in India (section 24)
• In Schedule III, ‘lottery, betting and gambling’, has been substituted by ‘specified actionable claims’.

> These shall be effective after enactment from a notified date(s).

Gist of IGST (Amendment) Bill / Act, 2023

> IGST (Amendment) Bill, 2023 was introduced in Lok Sabha on 11.08.2023, has since been passed by Lok Sabha on same day and enacted as Act No. 31 of 2023 on 18.08.2023.

> The Act provides for the following :

• Defines online gaming [section 2(17)]
• Scope of section 5 on ‘integrated tax on goods’ is proposed to be changed to provide ‘goods other than goods as may be notified …’
• Place of supply to any unregistered person to be location of supplier where address of such person is not recorded in the invoice (section 10)
• Provide for special provision for specified actionable claims (online gaming) supplied by a person located outside the taxable territory to a person located in India [Section 14A]
• Provide for special provision of requirement of taking single registration under a simplified scheme, payment of integrated tax on online gaming and blocking of access by the public to any information used for such supplier in case of non- compliance of registration or non-payment of tax [Section 14A].

> This shall be effective from a date to be notified later.

There is a likelihood of the GST being levied @ 28% w.e.f. 01.10.2023.  It is expected to raise about Rs. 2000 crore of tax revenue which is expected to be levied from 1^st October, 2023.

Conclusion: The decisions taken during the 50th and 51st GST Council meetings mark a significant development in India’s online gaming taxation. While the uniform 28% GST aims to simplify the taxation process, its implementation has sparked debates and concerns among stakeholders. The tax, effective from October 1, 2023, could either bolster the government’s revenue or potentially curb the growth of a burgeoning industry. Either way, the next few months will be crucial in revealing the actual impact of these legislative changes.