7 Online Gaming Firms, Dozens Of Players Face IT Dept Notice For Alleged Tax Evasion

As the gaming sector stays under the regulatory vigil, the income tax department has issued show cause notices to seven online gaming firms, as well as about three dozen high-value players active on those gaming platforms.

The IT department has issued these notices over the past 15 days, ET reported. In all these cases, the possible tax evasion could be as much as INR 28,000 Cr. 

However, as per an official quoted in the report, this may just be the tip of the iceberg, while the actual evaded amount could surpass INR 28,000 Cr and be much higher. 

The IT department has also collected data on high-value participants with over INR 50 cr in earnings. Unsurprisingly, some of the gamers are students and young IT professionals who are based in Bengaluru, Pune and Gurugram.

“We have the data… We are in the process of issuing notices to some of the players and companies,” Nitin Gupta, chairman, central board of direct taxes (CBDT), said. 

While there is much confusion around gaming taxation, CBDT is also working out detailed guidelines on taxability of the online gaming sector. Currently, they have to pay a 30% tax for gross gaming revenue. 

In addition, the gaming portals are also required to deduct tax at source at the rate of 0.1% for winnings of over INR 10,000. The gaming companies were not strictly enforcing tax deduction at source provisions, the official said.

Gupta reportedly also said on Tuesday that the income tax department has started issuing notices to individuals who have played and won online games, with winning a prize money to the tune of INR 58,000 Cr in the last three years. 

This comes closely on the heels of the Directorate General of GST Intelligence (DGGI) issuing a show-cause notice to Rummy parent Gameskraft Technology for allegedly evading tax on a betting amount of INR 77,000 Cr between 2017 and 2022. Gameskraft Technology has also reportedly filed a writ petition at Karnataka High Court challenging the notice.

Currently, an inter-ministerial group, set up by the government, is working on a framework to regulate online gaming. The committee reportedly plans to bring rules governing the amount of money an individual player spends on the games.

In the meantime, the number of online gamers in the country reached 390 Mn in 2021, according to the FICCI-EY report. Moreover, the gaming industry generated a revenue of nearly $1.3 Bn in the same year.