Tax Nightmare: Online Gaming Firms Staring At Potential Notices Worth INR 1 Lakh Cr

With no respite in sight, online gaming companies are likely looking at tax notices of around INR 1 Lakh Cr to be raised by the Directorate General of GST Intelligence (DGGI).

The development comes as the DGGI has already reportedly sent around a dozen pre-show cause notices to several real money online gaming companies worth about INR 55,000 Cr, according to an ET report.

These companies now have five to seven days to reply to the notices. Once their replies are studied, show cause notices with GST demand will be raised.

These also include a GST notice of INR 25,000 Cr to fantasy sports unicorn Dream11. Some reports also noted that the tax notice served to Dream11 might be as large as INR 40,000 Cr, making it the largest incident of indirect taxation in the country. 

Dream11 is said to have filed a writ petition in the Bombay High Court against the tax notice.

Those served the pre-show cause notices also include Play Games24x7 and its affiliates, and Head Digital Works. Officials cited by the publication also said Play Games24x7 and its affiliates RummyCircle and My11Circle have been issued a pre-show cause notice of INR 20,000 Cr. Head Digital Works has been served a notice of a tax demand of around INR 5,000 Cr.

Play Games24x7 runs a variety of online games, including My11Circle, a competitor of Dream11, and RummyCircle, a competitor of the Gameskraft game RummyCulture. Head Digital Works runs the likes of A23 Rummy as well as poker, pool and fantasy sports.

According to the person cited by the publication, the DGGI’s Mumbai unit alone issued around seven pre-show cause notices between Friday and Monday, asking the companies why a GST demand shouldn’t be raised. The person added that more pre-show cause notices would be raised from Delhi, Hyderabad and Bengaluru units. 

The notices come nearly two months after the GST Council raised the tax bracket for real money games to 28%, to be levied on the total bet placed at the entry of each gaming session.

The decision has increased the GST burden on online gaming startups by 400%, which has seen many lay off large chunks of their workforce to save costs or shut down entirely.

The tax notices also come as Gameskraft is currently embroiled in a legal tussle at the Supreme Court against an INR 21,000 Cr tax demand raised by the DGGI. The apex court stayed a Karnataka High Court order quashing the tax demand earlier this month and the next hearing on the matter is coming up soon.

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