Supreme Court Stays GST Show Cause Notices To Real Money Gaming Startups

In a relief to real money gaming companies, the Supreme Court on Friday has put a temporary halt on goods and services tax (GST) proceedings against 49 real money gaming companies, staying retrospective demand notices that sought taxes on the full face value of bets placed through the gaming platforms.

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

A Bench comprising Justices JB Pardiwala and R Mahadevan granted the temporary stay and listed the case for next hearing on March 18.

On October 1, 2023, the 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.

The finance minister at the time of announcement said that the decision will be reviewed six months after it comes into effect. However, there has been no review till now.

Under the new regulations, a flat 28% tax applies to the total value of bets for online games, irrespective of whether they are games of skill or chance. Previously, a lower 18% GST was levied, specifically on the platform fee for skill-based games.

Online gaming companies were issued 71 show cause notices for alleged evasion of GST amounting to INR 1.12 Lakh Cr during 2022-23 and the first seven months of 2023-24.

More than 40 petitions filed by online real-money gaming companies, challenging retrospective GST notices, are currently pending before the Supreme Court. However, smaller players have been struggling to absorb the cost, leading many to shut down operations.

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

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, finance minister Nirmala Sitharaman said last year.

The FM 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.

As per a report released by EY and US-India Strategic Partnership Forum (USISPF) in last year, more than 50% online gaming companies in India witnessed stagnant or declining revenues after the new regime came into effect.