SUMMARY
The finance ministry is considering classifying online games into two categories – games of skill and chance, and levying a differential rate of Goods and Services Tax
Under this structure, the games that are dependent on a certain outcome or are in the nature of betting or gambling would attract 28% GST while games of skill will attract 18% GST
Currently, a tax rate of 18% is levied on the commission collected by online gaming platforms for games not involving betting or gambling
In what will come as a major relief for the online gaming industry, the finance ministry is reportedly considering classifying online games into two categories – games of skill and chance, and levying a differential rate of Goods and Services Tax (GST).
Under this structure, the games that are dependent on a certain outcome or are in the nature of betting or gambling would attract 28% GST. On the other hand, games involving some amount of skill could be taxed at a lower 18%, news agency PTI reported.
“All online games are not games of chance and are not in the nature of betting or gambling. The finance ministry will be presenting its view before the GST Council,” an official of the ministry was quoted as saying in the report.
Currently, a tax rate of 18% is levied on the commission collected by online gaming platforms for games not involving betting or gambling.
Earlier, it was reported that a Group of Ministers (GoM), formed to recommend the GST rate for online gaming, may suggest 18% tax on gross gaming revenue (GGR). Before that, it had recommended a uniform GST rate of 28% for online games.
The GoM, headed by Meghalaya Chief Minister Conrad Sangma, agreed to apply the highest GST rate of 28% on betting, casinos and horse racing.
The GoM was constituted last year to examine the issue of valuation of services provided by casinos, race courses, and online gaming and to examine if any changes were required in the legal provisions to adopt better means of valuation of these services.
It must be noted that the Finance Act, 2023, recognised the online gaming industry as a new-age industry, distinguishing it from gambling and betting.
The Finance Bill 2023 introduced two new Sections – 194BA (for TDS on winnings from online games for online intermediaries) and 115BBJ (for computation of taxes for those who earn income from winnings of online games).
As per the Bill, prize money earned from online games would be taxed at 30% from April 1. Before March 31, 2023, TDS was imposed on the winning amount of online games if it exceeded INR 10,000.
Earlier this month, the Ministry of Electronics and Information Technology (MeitY) notified the rules for online gaming following months of consultation. However, the industry is still awaiting clarity on taxation.
According to a report by VC firm Lumikai, India’s gaming market was estimated to be worth $2.6 Bn in FY22. It is estimated to reach a size of $8.6 Bn by FY27. The number of gamers in India stood at 507 Mn in FY22, growing 12% from 450 Mn in FY21.
