Online Gaming: Centre in India Likely to Seek Differential Taxation

GST Council in India may take a final call in June.

In a change of stance, the Centre has decided to pitch for differential taxation of online gaming, with “games of chance” (gambling) to suffer a higher incidence of goods and service tax (GST) compared with “games of skill”.

According to an official source, all online games should not be considered as games of chance or betting or gambling. “There has to be a differentiation between games of skill and games of chance,” the source said, adding that the finance ministry will put forth its view when the GST Council takes up the report of a group of ministers (GoM) on online gaming, horse racing and casinos.

Although the final decision will be that of the Council, where both the Centre and states enjoy a veto, the ministry may recommend the highest GST rate of 28% for online games, where the winning is dependent on a certain outcome or, is in the nature of betting or gambling. A lower rate, say 18%, may be recommended for games of skill.

The GoM had recommended a 28% rate for casinos, race courses and online gaming. At present, an 18% GST is levied on online gaming on the platform fee.

In recent months, the GST authorities have gone after the online gaming industry, where it has found huge tax evasion. A notice seeking GST payment of `21,000 crore on gaming firm Gameskraft Technologies was stayed by the Karnataka High Court in September 2022. The online gaming industry has also sought a review of the new TDS provisions by the income tax department.

The GoM chaired Meghalaya chief minister Conrad Sangma, had in December last year submitted its report to the Union finance minister Nirmala Sitharaman. While it had proposed 28% on online gaming, there was no clear consensus on whether the tax should be levied on only the fees charged by the portal or the entire consideration, including the bet amount. It had subsequently decided to refer all decisions to the GST Council.

The GoM is unlikely to meet to review its report, another source indicated, adding that all views will now be put forth at the GST Council when it takes up the report. As of now, a date for the next meeting of the Council has not been finalised but it is expected to meet in June.

The industry has been waiting for a clarification on the GST on online gaming with officials cracking down on firms for tax evasion.

In recent months, the GST authorities have gone after the online gaming industry, where it has found huge tax evasion. A notice seeking GST payment of Rs 21,000 crore on gaming firm Gameskraft Technologies was stayed by the Karnataka High Court in September 2022. The online gaming industry has also sought a review of the new TDS provisions by the income tax department.

The GoM chaired Meghalaya chief minister Conrad Sangma, had in December last year submitted its report to the Union finance minister Nirmala Sitharaman. While it had proposed 28% on online gaming, there was no clear consensus on whether the tax should be levied on only the fees charged by the portal or the entire consideration, including the bet amount. It had subsequently decided to refer all decisions to the GST Council.

The GoM is unlikely to meet to review its report, another source indicated, adding that all views will now be put forth at the GST Council when it takes up the report. As of now, a date for the next meeting of the Council has not been finalised but it is expected to meet in June.

The industry has been waiting for a clarification on the GST on online gaming with officials cracking down on firms for tax evasion.

Tax officials are also hopeful that the recently notified amendments to the IT rules, 2021, would help in better monitoring of online gaming firms. Online gaming intermediaries involved in games with real money would have to get KYC details of the users.