Online Gaming Similar To Betting & Gambling, Taxable At 28%: DGGI Tells SC

The Directorate General of GST Intelligence (DGGI) has reportedly told the Supreme Court that online gaming companies are engaging in activities that qualify as betting and gambling, which are subject to the GST. 

The DGCI’s stance is that amounts staked by players in these games are taxable under the GST framework.

Additional solicitor general N Venkataraman appearing for DGGI told a bench led by Justice JB Pardiwala that the department is taxing “speculative outcomes,” that amounts to betting and gambling and not the online/offline gaming, according to an ET report. 

He highlighted that games like rummy fall under gambling and speculative outcomes generated from them are subject to taxing.  

“Speculative outcomes are considered relevant for taxing. Whether rummy is a game of skill or chance has no relevance. These games are nothing but gambling only… online activity is indeed betting and gambling activity,” Venkataraman said. 

He further said that gaming companies should not argue in favour of exemptions as playing with stakes lead to gambling and is not excluded from the ambit of taxation. 

The online gaming industry has been paying goods and services tax considering its activity as a service, taxable at 18%, but these activities are characterised as betting and gambling and hence taxable at 28% GST under the CGST Act, said Venkataraman. 

The development comes at a time when the SC is hearing a batch of petitions associated with 71 show cause notices issued to online gaming companies for alleged evasion of GST amounting to INR 1.12 Lakh Cr during 2022-23 and the first seven months of 2023-24.

Petitions filed by online real-money gaming companies, challenging retrospective GST notices, are currently pending before the SC. 

Taxation Turmoil Of Indian Gaming Industry 

On October 1, 2023, the union finance ministry notified provisions to impose a 28% GST on online gaming, a decision that caused turmoil in the industry.

As per the notification, online gaming, along with horse racing and casinos, was classified as “actionable claims” under the GST Act, placing them in the same category as lotteries, gambling, and betting.

Gaming companies like Gameskraft, Dream11, Games 24×7, and Head Digital Works, received GST notices and moved the apex court to get a stay on these notices.

In January, the SC put a temporary halt on these proceedings against 49 real money gaming companies, staying retrospective demand notices. 

Gaming Industry Reeling Under The Taxation Effect 

While multiple major players like MPL, Hike, and Spartan Poker resorted to layoffs following the implementation of the new GST regime, small platforms such as Fantok and Quizy were forced to shut down operations.

The shutdowns happened as the smaller players were struggling to absorb the cost. 

The GST collection from India’s online gaming industry surged 412% to INR 6,909 Cr in the first six months after the imposition of the 28% GST regime compared to the preceding six months. 

Union Finance Minister Nirmala Sitharaman said that GST collected from online gaming zoomed 5X during October 2023 and March 2024 period from INR 1,349 Cr in April-September period of 2023.

The final hearing on the GST show cause notices is expected to come this month as the SC said in January while staying the notices posting the matter for May.