• Notification Date: 01-08-2023
• Notification No: N/A

GST Council to clarify on Tax charged on Online Gaming

The Goods and Services Tax Council is likely to clarify how the tax will be levied on online gaming as well as provide a clear definition of such activities in its upcoming meeting. 

“What exactly would constitute online gaming for the purpose of tax is likely to be clarified by the Council. All games, whether those of skill or of chance, will be included in the definition of online money gaming, for the purpose of levying GST,” said a source familiar with the development. 

The Council, chaired by Union Finance Minister Nirmala Sitharaman is slated to meet via video conferencing on August 2, to decide on the legal amendment as well as rules to levy the tax. In its previous meeting on July 11, the Council had unanimously decided to levy a 28% GST on online gaming, horse racing and casinos on the full value. 

For this, section 3 of the GST Act needs to be amended to bring online gaming and horse racing as taxable actionable claims. The government is keen on introducing the amendments in the ongoing Monsoon session of Parliament that is on till August 11. 

Sources said the Council is also likely to elaborate on the manner and basis of levying the tax, which has been a key concern of the online gaming industry. Online gaming players are concerned about repeated taxation if GST is levied at every stage and have asked the government to clarify on this. Sources said this issue has been taken on board and the Council is likely to discuss the issue. 

L. Badri Narayanan, Executive Partner at Lakshmikumaran & Sridharan Attorneys, noted that when a player deposits money into a gaming platform, they are essentially buying the right to play games on that platform. “This right is inherent in the amount deposited, and once taxed upfront, no further tax should be levied,” he said. 

However, looked at from another angle, the proposed tax seeks to cover transactions involving players, which would include wins and losses. “In transactions between players, there are wins and losses. The wins amount to provision of supplies where payment is received by the player and losses amount to receipt of supplies where payment is made by the player,” he pointed out, adding that if every transaction is taxed on the full value of the bet or entry fee, then the tax is on all transactions as wins with no adjustments for losses or credit. Such a tax would create a cascading effect. 

Malay Kumar Shukla, Secretary, E-Gaming Federation also said charging 28% GST on every contest played every time with fully taxed winnings will increase the GST burden by 1100%. “In addition, owing to the taxation of redeployed player winnings, the same money will be taxed repeatedly resulting in a situation where 50-70% of every rupee will go towards GST,” Shukla noted. 

The Council is also likely to discuss how to block online gaming websites that operate from abroad and do not comply with the GST norms. In their investigations into online gaming companies for GST evasion, tax authorities have already been working with the Ministry of Electronics and Information Technology to block websites of such players.