Online Gaming Taxes in India & $12 Billion Tax Due Notice

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Last few years India Online Gaming industry has witnessed significant growth and is emerging as a thriving sector with immense economic potential. It was worth US $ 2.6 billion in FY-22 and is estimated to reach US $ 8.6 billion by FY-27. What considered to be a booming industry in India. Now it is facing some severe wrath from the India tax authorities. The Indian gaming industry receive a GST notice of $12 Billion outstanding due after the implementation of new GST law since October'1.

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Earlier in the year, the ammendment to Goods and Service Tax, the Finanace ministry introduced a flat rate 28 % on online gaming. While deciding the implementsrion of new Tax, a clear cut distinction made between online gaming and online money gaming in the amendments.

Casual vs Money

Online games are the ones which are played over the internet. There are so many games available to.play however nor all of them comes under the tax laws. Distinction are made between casual gaming and money gaming. An online causal gaming are the ones which a user plays for entertainment and there are no money involved. On the other hand online money gaming the player pays or deposits an amount in the expectation of winning some amount in a game or event.

Game of Skill vs Chances

Further drilling down on the pattern of online gaming, it was categorized between "game of sill" and "game of chance". The distinction is important as skill games invite lower tax rate.
A game of skill is one where the outcome is dependent on the player expertise. Some examples include rummy and fantasy sports games like Dream 11 etc. Whereas games of chance are treated similarly to betting, gambling, and horse racing, where no skill required and outcome completelly depends upon the chances or luck factor.

Growth of Online Gaming.

There was a sudden spike in the online gaming sector of Indian economy.Between 2017 and 2020, the gaming industry expanded at a CAGR of 38% compared to 8% in China and 10% in the US. Many factors have influenced the growth of this sector. Especially the #covid-19 lockdown.
Due to the restrictions and lockdown, people were confiend to their home. All their works were cardied out from.the comfor of home. From online schools to #workfromhome to online payments. Demand for online games too increased during this time, as it can easily be accesible in the idle time.
The other factor that led to the massive demand is the use of "Smartphone". Most games are played on mobile devices. Easy ans affordable access to Internet and advanced smart phones with enhanced gaming capabilities have fuelled the gaming market.

Gaming Taxes in India.

The previous tax structure, only 18% of GST was applicable on the online gaming. For example : If a person deposit $100 for gaming the GST amount will be $1.8.
However in the new tax regime, the entire face value of the bet will be subject to a 28% percent of GST. This means that activity of online money gaming will be taxed on the total amount paid or payable to or deposited with the vendor, by or on behalf of the player, irrespective of whether the game is skill based , or chance based, or both. This is highest GST rate applicable in India. This means that for every $100 deposited the GST amount will be $28. This is a significant increase in the GST.

Taxes dues

The decision of higher GST rate was taken as an effort to regulate the industry and ensure fairness and transparency. However the tax department has issued a show couse notice to gaming platform for tax evasion. The amounts stands out at $12 billion. There is no other specific information available.

The 28% GST on online gaming have positive and negative impacts in the industry. Few of the companies are trying to make up of the user loss by covering their tax on the deposits. However, the craze for online gaming keeps on rising day after day. Indicating any significant repercussion on the outcome.