• Notification Date: 26-12-2023
• Notification No: N/A

Online Gaming Industry accepts FM’s Clarification that Valuation Rules for GST are Prospective

The online gaming industry has welcomed Finance Minister Nirmala Sitharaman’s recent comments that the 28% GST would be levied prospectively on casinos, online gaming and horse racing and not on a retrospective basis.    

“A clarification on that levy was issued and according to that 28% is the tax. Whom it will apply to and on whom will the incidence fall has been clearly explained. But, about this point on valuation rules, I would like to put on record that the valuation rules to exclude winnings are prospective,” the finance minister had said in Lok Sabha on December 19, while replying to a discussion on the GST (Second Amendment) Bill. 

In effect, this means that the new valuation norms came into effect from October 1 under which the 28% GST would be levied on entry-level bets on online gaming platforms and not on what players pay in each game from the winning amount.   

Experts said the clarification by the finance minister will help the industry, but it is unclear whether it will have any impact on the tax notices and ongoing litigation.   

Shilpy Chaturvedi, Partner, Deloitte India said, “The industry which is facing the unique business challenges on account of GST will be looking at the courts for the final view on the interpretation on the valuation for past period. The industry is positively looking forward to the review by GST Council after 6 months of implementation of the levy.”   

Ankur Gupta, Practice Leader - Indirect Tax at SW India said that the clarification might impact the gaming companies for previous tax periods applying the valuation method introduced only from October 2023. “Therefore, after taxing the initial amount, the exclusion of winning amounts re-used to play will not be chargeable to GST. However, as this is a prospective amendment, placing bets from the winning amount will not be eligible for exclusion for the period before October 2023,” he said.   

The online gaming industry has in recent months been working to offset the impact of the 28% GST on their operations and has also been concerned about tax notices being sent for payment of past dues.    

As many as 71 show cause notices have been issued to online gaming companies during the fiscal 2022-23 and 2023-24 (up to October 2023) involving goods and services tax to the tune of Rs 1,12,332 crore, minister of state for finance Pankaj Chaudhary had informed the Rajya Sabha recently.