28% GST On Online Gaming From Today: Here’s Everything You Need To Know

Earlier this week, the finance ministry notified October 1, 2023 as the date for implementation of the amended provisions to levy 28% GST on online gaming, a decision which has caused havoc in the industry.

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. The move was part of the efforts of the governments, both state and central, to regulate online real money gaming. 

In August, amendments to the Central Goods and Services Tax (Amendment) Bill, 2023 and the Integrated Goods and Services Tax (Amendment) Bill, 2023, were approved by the GST council. Later, the Parliament approved these amendments. 

The amendments related to the insertion of a provision in Schedule III of the CGST Act, 2017, to provide clarity on the taxation of supplies in casinos, horse racing and online gaming.

So, what exactly changes with the amendments coming into force?

A Quick Look At Key Changes

Under the new regulations, a uniform 28% tax will be applied on the full value of bets placed in online games, regardless of whether it involves games of skill or chance.

For instance, if a player wagers INR 100, the new tax regime will levy a GST of INR 28 on that amount. In contrast, under the previous tax system, only an 18% GST was applicable and that too on the platform fee charged for games of skill.

To illustrate, if the platform fee was 20% of the bet amount (INR 20 in this case), the GST would be INR 3.6 (18% of INR 20) under the previous regime. Therefore, the increase in GST under the new tax rules represents a jump of around 1,000%. 

In addition to the tax changes, the government has also introduced specific rules that will be applicable to online gaming companies operating within India. These rules include registration and compliance requirements. 

The higher tax rate significantly increases the cost of participating in online gaming activities. Industry associations and prominent startups have expressed their deep disappointment with the new regulations. They believe the new rules will have a detrimental impact and the entire industry will be at risk of disappearing.

“This is an extremely unfortunate decision as charging a 28% tax on full face value will lead to a nearly 1000% increase in taxation and prove catastrophic for the industry. A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry’s image and capacity to survive,” Malay Kumar Shukla, secretary of E-Gaming Federation, said in July.

The gaming association All India Gaming Federation (AIGF) also echoed similar sentiments. “We believe the decision by the GST Council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs, will no longer be able to survive in the face of the increased tax liability of 400 per cent.” 

The predictions seem to have started coming true and the entire industry now seems in a state of distress.

Startups Across Stages In Turmoil

The decision to implement the 28% GST on online gaming has had far-reaching consequences. While some online gaming startups have decided to lay off employees to adjust to the new reality, others have shut shop. 

For instance, Bengaluru-based Gameskraft recently discontinued its fantasy offering, Gamezy Fantasy. Other gaming companies like Quizy and Fantok have either ceased their operations entirely or temporarily suspended them as they navigate the evolving regulatory landscape. 

Additionally, prominent players in the industry, including unicorn MPL (Mobile Premier League), Kavin Mittal-led Hike, and Spartan Poker, have sacked employees due to the impact of the GST Council’s decision.

Then, there is also the issue of retrospective tax notices. A number of online gaming startups, including fantasy sports giant Dream11, Head Digital Works, Games 24×7, and listed gaming startup Nazara, have received show-cause notices from the Directorate General of GST Intelligence (DGGI) over the past week for tax evasion in the last few years.

Overall, online gaming companies are expected to receive tax notices for a whopping INR 1 Lakh Cr from the DGGI, which has further dented sentiments.

As Inc42 reported earlier, the new tax regime was expected to result in a consolidation wave in the online gaming industry, with bigger players acquiring smaller ones. However, with the big players in the industry now receiving show-cause notices for alleged tax evasions, the future certainly looks bleak for the sector for now.

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