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In what’s shaping up to be one of the expensive courtroom battles in India’s corporate history, the country’s booming online gaming industry is bracing to spend a jaw-dropping ₹30 crore on just four days of legal hearings in the Supreme Court this May.

Why the high drama (and even higher bills)? The answer lies in a tax battle that’s worth a staggering ₹2.5 lakh crore. The Supreme Court will finally begin hearing the much-anticipated case on May 5 involving show-cause notices issued to some of India’s biggest online gaming companies. 

The issue is whether online games of skill like rummy, poker, and fantasy sports should be treated the same as gambling and betting. The government says yes—and wants to levy 28% GST on the entire face value of each bet. The online real money gaming industry strongly disagrees, arguing that these are not games of chance but of skill—and that applying gambling tax laws here is both unfair and legally flawed.

An elite lineup of legal heavyweights will be representing the gaming firms— Senior counsels Harish Salve, Dr. Abhishek Manu Singhvi, Mukul Rohatgi, C. Aryama Sundaram, Sajan Poovayya, Vikram Nankani, Arvind Datar, Dhruv Mehta, Gopal Sankarnarayanan, Balbir Singh, and more. These aren’t just lawyers—they’re the equivalent of legal rockstars, each commanding tens of lakhs per appearance.

On the other side, the Union of India will be represented by Additional Solicitor General N. Venkatraman, who will argue in favor of the tax demands and defend the government’s position on retrospective taxation. Some of his notable cases include Kerala v. Union Suit on Borrowing Limits and The Chamber of Tax Consultants vs Director General of Income Tax.

“The cost of litigation since October 2023 must already be around ₹15 crore,” said a senior counsel familiar with the matter. “But the real spike will come in May. For four full days of arguments with top-tier senior counsels appearing in person, you’re looking at nearly ₹30 crore in fees, travel, accommodation, and support teams.”

Siddharth Chandrashekhar, Advocate at the Bombay High Court broke it down more vividly: “High-stakes cases are a different beast. Clients aren’t just paying for time—they’re paying for the space our expertise occupies in your panic stricken mind." 

Another senior counsel cited the reason behind high legal fees charged by senior counsels, "There are a veritable phalanx of senior counsels appearing in this matter. The court craft, style and language used and the way the top senior counsels can read a provision and present an argument can change the complexion of a case."

Beyond the glitz of legal theatrics, the outcome of this case will have enormous implications. A verdict in favor of the gaming firms could set a major precedent, clearly separating skill-based games from gambling under India’s tax and regulatory frameworks. It would be a lifeline for hundreds of companies and thousands of jobs in an industry already reeling from the blow of the 28% GST imposition.

But if the court rules in favor of the government, experts warn of a bloodbath.

“If the Supreme Court upholds the tax demands, many gaming companies might be forced to shut down,” warned Adarsh Somani, Partner at Economic Laws Practice. “Their tax liabilities would far exceed any revenue—let alone profits.”

There’s also a wildcard in play: Section 11A, a recently introduced clause that could allow the government to “regularize” the industry retroactively. “It’ll be interesting to see whether, even if victorious, the government uses this provision to safeguard the industry’s future,” Somani added.

On April 8, when Additional Solicitor General N. Venkatraman and senior counsels for the gaming firms stepped into the Supreme Court. The bench—comprising Justices JB Pardiwala and R. Mahadevan—was ready to proceed, expecting arguments to kick off immediately. But in a twist, both the parties pleaded for more time.

The court wasn’t thrilled. Justice Pardiwala reportedly remarked that the expectation was for the hearings to begin that very day. Still, after persistent back-and-forth and requests from both sides, the bench reluctantly agreed to adjourn—one last time.

The next date was decided on May 5 and the case will run straight through the week, the court has drawn a hard line—no further adjournments. 

And for four days, the Supreme Court won’t just be the stage for a tax showdown. It will also host one of the expensive legal lineups in the gaming world—and perhaps which could also determine the fate of India’s online gaming sector.

RMG industry set to shell out Rs 30 crore in four days for SC GST battle

In the recent GST Council Meeting, even though Finance Minister Nirmala Sitharaman clearly indicated that review of the 28% taxation on initial deposits for casinos and online gaming for was not on the agenda for the meeting, in the 51st GST Council meeting held in August 2023, it was decided that a review of the new taxation regime for online gaming and casinos will be done six months post its implementation.

Since the new tax regime was notified from 1st October, 2023, it has been over 8 months since it has been implemented. Even though discussion on the subject could not take place during the meeting, the industry is hopeful that a comprehensive review and discussion on the subject will take place in the next council meeting that is scheduled to take place in August-September 2024.

"As far as retrospective show cause notices to online gaming and casino companies are concerned, it is encouraging that the GST Council has recommended insertion of a new provision in the CGST and SGST Acts, i.e., Section 11A that would give power to the government, based on the recommendations of the council, to allow regularization of short or non-levy of GST if such tax was not being paid due to common trade practices," says Jay Sayta, Technology & Gaming Lawyer.

"Since the entire online gaming industry was paying tax only on Gross Gaming Revenue (GGR) or margins until 1st October, 2023 and it was a common trade practice, the amendment once passed by parliament and state legislatures, will potentially be a first step to enable the government to withdraw retrospective show cause notices issued to over 70 online gaming companies based on the erroneous computation of face value of each bet instead of the
common trade practice of GGR," he adds.

Online Gaming a Winner's (and Loser's) Game? 

Gautam Arjun, Co-Founder and CEO, ediiie says, "The recent revision in the Goods and Services Tax (GST) framework, shifting from an 18% tax on profits and commissions to a 28% tax on entry fees, might question the viability of the gaming industry. Previously, if 10 players joined a game by paying Rs 100 each, resulting in a total collection of Rs 1,000, and the winner took away ₹950, the company paid 18% GST on the remaining Rs 50, that is Rs 9." 

He further adds, "With new regulation mandates, Rs 280 is paid upfront as GST, which is fundamentally altering this balance. Companies are now required to pay a huge amount in taxes, which might threaten the operation of small players and result in shutting down the company. The previous structure allowed the industry to flourish with a balanced approach to taxation that did not heavily burden the operators or the players. Additionally, many players are forced or now prefer to play on international platforms that have no structure or regulations or control abuse and/or control underage gaming, unlike the Indian IT Laws."


Arjun points out that it is crucial to recognize that with the increased taxation rate and its broad application, the industry could potentially see a contraction in the number of market participants, with only the largest players surviving. This could lead to a significant decrease in the winning pool, resulting in a lesser number of players participating. Such regulatory change necessitates a revaluation of the industry's economic model and could lead to a significant transformation in how online gaming operates in India.

This decision not only reshapes the financial dynamic of the gaming sector but can also push its sustainability and growth towards a significant challenge.

 Investment Freeze, Job Losses, and Existential Threat 

Ankur Gupta, Practice Leader - Indirect Tax at SW India shares, "This amendment has had profound consequences on the pay-to-play online gaming sector, disrupting revenue models and profit margins, and stalling Foreign Direct Investment (FDI). Based on a report issued by USISPF, since October 2023, no new capital has been raised in the sector, which had previously attracted $2.6 billion in FDI since 2019. The elevated GST has led to funding challenges, reduced growth, job losses, and heightened uncertainty, with casual games facing the brunt of the impact."

He adds, "The sector's viability is in jeopardy, with many companies experiencing stagnant or declining revenues. The Government should consider revising the GST valuation mechanism from the "full-face value of total deposits" to Gross Gaming Revenue (GGR)/platform fees or else reduce the tax bracket if the tax continues to be on deposits to mitigate the negative impact. The high tax regime may also drive customers towards offshore or illegitimate platforms, leading to significant revenue losses for the exchequer and increasing gambling addiction."

Cautious Optimism About India's GST 

Kris Fernandez, Chief Marketing Officer, FOMO7 says, “As one of the law-abiding global iGaming players, we think that the GST Council's decision to impose a tax on gaming, horse racing, and casinos in India by 28% was made after much consideration of the implications. We appreciate this action as it shows careful thought and commitment to a fair and regulated gaming industry. This tax, in my opinion, will encourage transparency and ethical gaming practices. How this would benefit customers and industry players would only become clear with time." 

"At FOMO7, we think that even though the government's decision to impose a 28% GST might cause some disagreements in the online gaming industry for the rising players and even customers, it comes after a great evaluation and we stand with the same." The proposed amendment might make the way smoother for the gaming industry." he states and adds, "We think the tax will facilitate easier traceability, transparency, and effective stakeholder monitoring. The current events haven't caused us to alter our marketing plans. However, in order to capture the audience's attention more effectively, marketing and advertising are more important. Before making any additional decisions, we will wait to see if there is a significant influence on this."

Game over for profits? Industry unplugs concerns over GST

By Aviral Kapoor


Online gaming in India has witnessed a meteoric rise, becoming an integral part of the country’s digital entertainment landscape. According to Invest India, the gaming sector has transformed from being a mere pastime to a mainstream entertainment source, with a projected market value of $3.9 billion by 2025. The proliferation of smartphones, affordable internet, and a young demographic have fuelled this growth, making India one of the top five mobile gaming markets globally.


However, the journey of online gaming in India is not without its challenges. The introduction of a 28 percent GST levy threatens to significantly impact the sector, with several companies already announcing layoffs due to the financial strain. This tax imposition has prompted industry stakeholders to anticipate layoffs, valuation cuts, and even potential shutdowns of smaller firms.


 Yet, amidst these challenges, there are opportunities. The online gaming industry currently employs over 100,000 individuals, with projections estimating the creation of 1.6-4 lakh additional jobs in the next two to three years. These jobs span various domains, including tech, programming, testing, animation, design, and artistry.


 As the online gaming sector navigates through these regulatory and financial challenges, it becomes imperative to understand the broader implications for stakeholders and the way forward for this burgeoning industry.

 
Current regulatory framework

 
The introduction of the Information Technology (IT) Rules by the central government in 2021 marked a significant shift in the digital landscape of India. These rules, while aiming to regulate intermediaries and digital media, were met with mixed reactions. On one hand, they were lauded for bringing clarity and structure to the rapidly growing online sector, especially with the inclusion of guidelines for online gaming in the 2023 amendments. The recognition of the online gaming sector, one of the fastest-growing tech-based industries in India, and the subsequent efforts to regulate it showcased the government’s commitment to adapting to the digital age.


However, the broadened definition of online games, encompassing all internet-offered games, raised concerns about potential overreach and the stifling of innovation. While the classification of entities offering these games as Online Gaming Intermediaries (OGI) brought a semblance of order, the stringent verification processes mandated for Online Real Money Games by Self-Regulatory Bodies (SRBs) were seen by some as a potential barrier to entry for smaller developers.


The Gaming Amendments of 2023, though comprehensive, also brought to light the delicate balance between regulation and freedom. The empowerment of SRBs to create frameworks for responsible gaming, protection against harm, and adherence to national guidelines was a positive step towards self-regulation. However, the central government’s retained power to intervene, suspend, or deregister SRBs raised concerns about autonomy and the potential for bureaucratic red tape.


Furthermore, while the emphasis on user verification and the prohibition on financing for Online Real Money Games aimed to protect users, it also posed challenges for platforms in terms of implementation and user experience. The fusion of obligations for OGIs with significant social media intermediaries blurred the lines between different digital entities, leading to debates on the appropriateness of a one-size-fits-all approach.


 In essence, the Gaming Amendments of 2023, while marking a pivotal step in India’s online gaming regulatory journey, also underscored the challenges of crafting regulations that cater to diverse stakeholders. The need for a dynamic, adaptive, and consultative approach remains paramount as the digital landscape continues to evolve.

 
TDS implications for players

 
In a significant shift in the taxation landscape for online gaming, the Central Board of Direct Taxes (CBDT) has rolled out specific guidelines detailing the mechanism for online gaming companies to deduct tax from players’ winnings. Effective from April 1, 2023, these guidelines mandate that online gaming companies must deduct Tax Deducted at Source (TDS) on every rupee earned from winning an online game. This is a marked departure from the previous financial year (FY 2022-23), where TDS on winnings from online games was applicable only if the winning amount exceeded Rs 10,000 in a financial year.


The tax will be deducted under the newly introduced Section 194BA of the Income Tax Act, 1961. The rate for TDS on winnings from online games has been set at 30 percent. This tax will be deducted either at the time of withdrawal of the winnings by the player or, if there is no withdrawal, at the end of the financial year. Furthermore, the CBDT has clarified that the Goods and Services Tax (GST) will not be included when calculating winnings from online games for the purpose of TDS under Section 194BA.


For players, this means that a significant portion of their winnings will be withheld as tax, potentially impacting their overall earnings from online gaming. However, the introduction of these guidelines brings transparency and clarity to the taxation process, ensuring that both players and gaming companies are clear about their tax obligations. For the companies, the compliance with respect to deduction of TDS has increased significantly.

 
GST implications on online gaming companies

 
The online gaming industry in India has been undergoing significant changes, especially in the realm of taxation. Prior to the recent amendments, the Goods and Services Tax (GST) regime had a different structure for online gaming. However, in a transformative move, the GST Council decided to impose a 28 percent GST on online gaming, effective from October 1, 2023. This decision was based on the full face value of bets at the entry level, marking a significant shift from the earlier tax regime.


This transition to a higher tax bracket has not been without its challenges for the industry. The Directorate General of GST Intelligence (DGGI) has issued pre-show cause notices to several online real money gaming (RMG) companies, alleging evasion of GST to the tune of about Rs 55,000 crore. Notably, fantasy sports platform Dream11 received a GST notice of over Rs 25,000 crore, making it one of the largest indirect tax notices served in the country. Other major players have also been served notices. The cumulative GST demand from RMG companies is expected to touch a staggering Rs 1 lakh crore, as per industry insiders.


Such hefty tax demands have raised concerns about the future growth and sustainability of the online gaming sector in India. The imposition of a 28 percent GST, coupled with the massive demand notices, could potentially deter new entrants from venturing into the online gaming space, thereby stifling innovation and competition. Existing companies might also face financial strains, which could lead to downsizing or even closure of operations for some. Furthermore, the high tax rate could result in increased costs for consumers, making online gaming less affordable for the masses.


On the other hand, the government’s perspective is rooted in ensuring that the online gaming industry contributes its fair share to the national exchequer. The move to levy a higher GST is seen as a way to regulate the rapidly growing sector and bring in additional revenue. However, the industry argues that a more moderate tax rate would be conducive to its growth and would still result in substantial revenue generation for the government.

 
The way ahead


The online gaming sector in India stands at a crossroads, poised between unprecedented growth and regulatory challenges. As the digital landscape continues to evolve, the industry’s resilience and adaptability are being tested by the ever-changing regulatory and taxation frameworks. The introduction of a 28 percent GST and the stringent TDS guidelines reflect the government’s intent to ensure that the sector contributes equitably to the nation’s coffers. However, it’s imperative to recognise the potential repercussions these decisions might have on the industry’s vibrancy and innovation.


While the government’s efforts to regulate and tax the sector are understandable from a revenue generation and user protection standpoint, it’s crucial to ensure that these measures do not stifle the industry’s potential. The online gaming sector, with its vast employment opportunities and contribution to the digital economy, deserves a regulatory environment that fosters growth while ensuring accountability.

 

The writer is partner, Alagh & Kapoor Law Offices.

India's booming online gaming industry faces challenges in transition to 28 percent GST bracket

Equating gaming with luxury goods and clubbing it with ‘sin goods’ in the highest slab of the goods and services tax (GST) regime of 28 percent may have been a curse for many but has, surprisingly, also become a boon with regulatory measures curbing the illicit operations of offshore betting firms with little accountability. The closure of platforms such as Betway and Bet365 indicate a potential decline in offshore betting activities within the country.

Beltway, the Malta-based online gambling platform offering sportsbook and online casino services, recently announced the end of its operations in India. Attempts to download the platform now display a message stating, "We regretfully have elected to cease trading in your region. We will work with you to return any outstanding balances."

Betway and similar platforms had been operating openly in India, enticing customers with catchy slogans and graphics. They sought to establish legitimacy by featuring endorsements by well-known sports and entertainment figures such as TV personality Rannvijay Singha for Betway, Hindi actor Ranbir Kapoor and Hindi, Haryanvi and Punjabi rapper Badshah for Fairplay, Bollywood’s Nora Fatehi for Sportsexch and many others. Most recently Betway was even seen advertising on popular television channels during the Ashes 2023 England-Australia cricket tournament.

How is the introduction of the 28 percent GST helping?

“In order to bring offshore gaming companies on a par with the domestic online gaming companies, the government has introduced a tax of 28 percent on the total funds collected by online gaming companies from users/gamers and not on each and every bet, i.e., the full bet value. One of the other major another idea behind the introduction of the new raised tax on the full bet value on all online gaming companies is to bring under the purview the rampant suspected money-laundering schemes illegally run by offshore online gaming companies,” said Shivani Bhushan, senior associate at boutique law firm TAS Law.

The resultant effect of this is that all offshore online gaming companies operating in India will have to mandatorily be registered locally or will have to appoint a representative to pay the taxes collected on the full bet values. If they fail to comply, such gaming companies will be blocked from providing their services in the country.

Experts foresee the offshore online gaming business decreasing in India as they will now lose the tax arbitrage they enjoyed, and also due to increased competitions from domestic online gaming service providers.

“This imposition of (the new) tax regime is also keeping in mind the severe risk imposed to the financial security, privacy and wellbeing of citizens, as Indian online gamers were/are at risk of being exposed to nefarious and unscrupulous platforms that are not under the scrutiny of the Indian government,” Bhushan explained.

The anomalies

However, the All India Gaming Federation highlighted that there are several states where the amendments have not been incorporated in their respective GST laws and hence the notification may stand suspended till such time all states have carried out the amendment.

Some platforms are using their rivals’ closure to promote their own offerings. Fun88, for instance, is circulating promotional messages announcing the closing of Betway and calling themselves “the only legitimate global brand in India”, while offering a 300 percent welcome bonus. 

 

What were the loopholes these platforms were using to operate in India?

Disguised as content platforms, offshore betting companies had been a significant presence in India for quite some time. Their advertisements often feature QR codes that once scanned redirect users to WhatsApp business accounts. These accounts provided access to websites, complete with usernames and passwords, allowing individuals to place bets.

“Offshore betting platforms exploit various loopholes to operate in India, operating from lax regulatory jurisdictions and obtaining foreign licences. The digital nature of their operations, along with the unclear gambling laws in India, aided their cause. Evading taxes and adhering to FEMA (the Foreign Exchange Management Act) rules, they manage to function in a legal grey area. Tactics like domain shifting post-ban, and collaborations with local entities further facilitate their operations,” said Aviral Kapoor, partner at Alagh & Kapoor Law Offices.

What will the platforms do now?

“In the light of recent regulatory updates, offshore gaming platforms operating in India are now under stringent compliance scrutiny,” Kapoor added.

The government has mandated these entities to officially register within the country, ensuring transparency and adherence to the 28 percent GST slab. Key compliance areas include the clear display of rules, privacy policies and user agreements on their platforms. Additionally, platforms are required to appoint resident grievance officers, chief compliance officers and nodal contact persons, all based in India.

The silver lining of 28 percent GST on gaming: crackdown on offshore betting firms

August has been a rollercoaster ride for the gaming industry. Moving forward, it is going to get even rougher. At the 51st GST Council meeting, it was announced that starting October 1, a 28 percent tax would be imposed on online gaming, horse racing and on casinos.


 
The GST will be levied without differentiation, on both games of skill and games of chance, and 28 percent would be charged on their face value at the entry point. The announcement was met with strong criticism from the gaming fraternity where a group of 130 gaming companies wrote an open letter expressing their fear that users would migrate to offshore gambling and betting platforms.


 
In the past, a GST of 18 percent and 28 percent were levied on the commission of games of skill and games of chance respectively. With the imposition of a common 28 percent GST weeks away, its impact on the influencer economy raises serious concerns.


 
Pre-28 percent GST introduction: Marketing spends of brands


 
In terms of the influencer budget, on an average, a brand would easily spend close to Rs 1.5 crore per year.

 
But there are certain brands where the influencer and the yearly budgets exceed Rs 2.5 crores to 3 crores respectively. However, on an average, top tier endemic brands spend approximately Rs one crore to 1. 2 crores.

 
Endemic brands are brands that take up a natural space within the market. In the gaming industry, endemic brands are the ones which are related to Esports (electronic sports) or gaming peripherals. Non-endemic brands are brands which belong to industries outside of Esports. 

 
As per Agarwal, the second tier endemic brands usually spend close to around Rs 5 lakhs - 6 lakhs a month, which accounts for somewhere around Rs 60 lakh to 70 lakh a year.

 
He says, “Non-endemic brands have a very wide ecosystem. We have seen spends that go as good as Rs one crore to two crores. But, there is no consistency from a non-endemic brand in terms of influencer spends. In the case of endemic brands, it is somewhere around Rs 1. 5 crores.” 


 
Content put out by gaming brands


 
"With endemic brands, there will be content like unboxing videos and product review videos. Since, endemic brands are usually tech brands, tech brands mean they have a product that they would want to push. So in order to push the product, brands find ways to work with influencers to review their products," says Agarwal.

 
In the case of non-endemic brands, the brands could range anywhere from a KFC or Hyundai to a TVS bike. KFC associating with a gamer would be very different from TVS associating with a gamer. Most of the time, it is a tricky marketing task.


 
Recession and its impact on the influencer economy


 
The year starting 2022 saw a global recession affect the tech industry as a result of Covid-19, the Russia-Ukraine war and increased rates due to rising inflation. Major tech companies like Facebook, Amazon, Google, Netflix and Tesla, lost over $3 trillion in combined market value. 

 
As per a media report, domains such as social media, semiconductors and cloud computing were hit by the recession, leading to poor growth and a decrease in stock prices.

 
Although the recession didn't have much of an impact on India, influencer marketing was one of the first domains to get affected because of the recession. 

 
“So, we are actually starting to see the budgets slightly recover because we are inching closer towards the festive season. Before that, for at least 4 months - 5 months, it was a very dry period, because the recession had a very indirect effect on the industry,” adds AlphaZegus’ Agarwal.

 
As per Agarwal, in the influencer space, the imposition of 28 percent GST is less of a concern than recession, which is a greater concern.

 
“Because at a time when recession is there, and numbers of the creators are not at the best, the only thing that can be done is creating unique content that kind of reaches to newer audiences or appeals in a very different manner to the current audience,” adds Agarwal.


 
Effect of 28 percent GST: Endemic brands and non-endemic brands


 
As per AlphaZegus's Agarwal, endemic brands don't go towards in-game marketing. For example, in-game banner ad placements or in-game real estate placements. They have had a more systematic procedure, in terms of the way they do their marketing spends, whether it's with influencers or with media buying. 

 
He explains, “The point is that the 28 percent slab does not really apply to media buying or influencer marketing in any way. So, they are the major cash burning areas for an endemic brand. Since influencer marketing is kind of immune to this whole system, the marketing spends don't really get affected.”

 
However, in the case of non-endemic brands who have been experimenting in the gaming space, they have been trying to do a lot of in-game integrations. They have been trying to do in-game real estate. Here, 28 percent GST does have an effect. 

 
Agarwal says, “A 28 percent implication on a non-endemic brand would be a hiccup because some of them would have a reservation like, ‘Why should I end up spending more on an experimental category? Rather, I just spend that amount on some other category, like a non-gaming category.”

 
Shagufta Iqbal, an influencer who works in the video gaming and content creation sector is a part of the PC gaming community. Currently, she is collaborating with computer peripheral brands like Intel, MSI, HP and Lenovo.

 
Iqbal highlights that the introduction of 28 percent GST has not affected her brand collaborations. Iqbal keeps her distance from real money gaming and gambling sites so as to not let her present and future collaborations with brands be affected.


 
Expert say: Implications of 28 percent GST and steps to be taken 


 
As per Pavan Padaki, branding coach and principal - Insights - In Sight Consulting, and author of Brand Vinci explains, “When it comes to vice marketing, it can be horse racing, an online game of chance, or other vices like liquor. In the vice marketing industry, history tells us, there has always been some kind of an opposition when there has been an increase. But the government will always like to flog this vice market because these are addictive and they are not going to stop. Initially, you could see a small dip. But eventually, they catch up with the curve because vice marketing will never fail.” 

 
As per gaming consultant, Navneeth Srinivas Garre, the imposition of 28 percent GST is going to affect companies whose repercussions will be experienced by the influencers. This will impact the marketing strategies and revenues.

 
Companies will look at other sources of revenues or other models of revenues. If social gaming is one of the models of revenues that a company requires, then they will walk towards social influencers.

 
“Social influencers have communities under them, and have people following them. And social influencers will also help keep the community engaged,” concludes Garre.

Gaming influencers - How would 28 percent GST affect marketing spends on influencers?

The gaming industry in India has experienced impressive growth in the last two years, outperforming a lot of leading markets in terms of userbase, technology, and monetization options. 

However, the introduction of the new GST tax slab and valuation methodology has raised concerns within the sector. Industry stakeholders fear that the significant rise in GST could have a negative impact on the overall growth of the industry. Small and medium players, operating on slimmer profit margins, are expected to be the worst hit. 
Despite the Finance Minister's clear stance on the tax decision, stakeholders remain hopeful that the government will consider the potential challenges faced by MSMEs in the industry.

“This was an expected move from the government but at an industry level it is expected to affect online gaming both RMG and non RMG on their user base, revenues and overall gaming experience,” said Soham Thacker Founder CEO Gamerji.

The nearly 4X rise in GST will shackle the industry’s growth as per Siddharth Sharma, SVP- Business Strategy, Head Digital Works (A23) and businesses will have to we pivot their business models to adapt to the new tax regime. 
While re-strategising business models might be an option for the larger profit making players for the smaller online gaming enterprises, the weight of this taxation could prove to be insurmountable as per stakeholders. 

“These businesses typically operate on slimmer profit margins and possess fewer resources when compared to their larger counterparts. The cumulative effect of these taxes could severely curtail their ability to maintain operations, invest in technological advancements, and provide enticing incentives to attract gamers,” said Indie fantasy platform Super4’s founder, Rohit Bansal.

According to Bansal, it is imperative that the GST Council reevaluates this decision and supports a more equitable approach that acknowledges the unique challenges faced by smaller industry players. 
Sudipta Bhattacharjee, Partner, Khaitan & Co said many smaller start-ups in the business may have to shut shop even before the expiry of the review period of six months.

“The problem remains that GST, despite being a tax on supply of goods/service, is being levied on a value that is much higher than the actual revenue earned by the online gaming platforms for their supply of facilitation services to players. Though a reconsideration was sought by the State of Delhi, it was unfortunately overruled,” Bhattacharjee said. 

Investors in this sector may continue to be concerned given the ‘blow hot, blow cold’ approach towards online gaming according to her. 

“On the one hand, the sector is lauded and encouraged through ‘light touch’ regulations by the MeITY and on the other hand punitive taxation is reaffirmed to be imposed under GST (despite several pleas from the sector) by levying the same level of GST as ‘betting and gambling’ on online games of skill, ignoring decades of settled legal position that games of skill cannot be equated with gambling,” she added. 

In spite of all the clarifications provided by the finance minister in the press briefing post the August 2 GST Council meet, some areas still remain unexplained. 

Technology and gaming lawyer Jay Sayta pointed out, that while it 28 percent GST will be applicable at the stage of purchase of chips or deposit into the online gaming wallet and not on winnings reinvested to enter future games or contests, whether chips or deposits that are returned by the customer or withdrawn would be treated as refund of goods and eligible for offset or credit of GST.

Further, the Revenue Secretary has also indicated that the department intends to pursue claims on retrospective dues and has filed an appeal in the Supreme Court against the Karnataka High Court order that quashed the Rs 21,000 crore GST notice against Gameskraft.

“If the department is amending the law on a prospective basis, it is entirely irrational and illogical to pursue claims for retrospective dues for which there is currently no legal provision,” Sayta said.

Finally, the fact that there was no complete consensus or unanimity within the council and that the possibility of review of the decision after six months of implementation has been left open is a sign of the complexities involved in the issue. 

“Hopefully, there will be a complete review of the decision in the second half of 2024 and the industry’s demands to tax on Gross Gaming Revenue (GGR) would be positively considered in the future,” he added. 


GST Council decision on online gaming: Industry voices concerns and hopes for future review

The Group of Ministers (GoM) of the Goods and Services Tax (GST) Council is said to have finalised a fresh GST mandate for the lottery, casino, and gaming businesses.

According to reports, all online gaming will be taxed at 28 percent. While games of chance such as racing, betting and lotteries are taxed at 28 percent of the contest entry amount, other types of online gaming are currently taxed at 18 percent of the platform fee.

The proposed decision, which is due this month, has got online gaming businesses worked up. If taxed at 28 percent, as has been reported, the sector is bound to see a huge dip, said experts.

Most online gaming companies are startups and are in the stage of cash burn, with profitability a few years away, said Suraj Chokhani, MD of Ability Games. According to him, 28 percent GST on contest entry fees will put the survival of the whole sector in doubt.

“I am hopeful that the government and GoM will look at ways and means to support the industry while ensuring that revenue generation for the exchequer is not compromised. We hope the government does not consider imposing such unsustainable taxation when the industry is at such a nascent stage,” he added.

India is the fifth-largest online gaming market in the world, according to an EY report. The domestic market is expected to grow rapidly on account of factors such as increased investments, wider internet availability, and a tech-savvy younger population, EY said.

Growing market

Online gaming in India was worth $543 million in 2016 and had grown to $1.027 billion in 2020. The market is estimated to reach $2 billion by 2023 in terms of rake fee earned.

Rake fee is the commission charged by online gaming operators. This commission or gross gaming revenue (GGR) is taxed at 18 percent. The rate is in line with global best practices and international tax structures followed by many countries, which ranges from 15 percent to 20 percent.

Aditya Chopra, managing partner of Victoriam Legalis, a law firm, says it is important to note that levying 28 percent GST on gross gaming revenue on certain genres of gaming is different from levying 28 percent GST on all online gaming in a blanket manner.

“Online gaming would include games of skill as well as games of chance. While games of chance already attract the said high rate of tax, as per the present regime, imposing a blanket 28 percent on all online gaming would increase the tax imposed on online skill gaming from 18 percent to 28 percent,” he said.

It is also significant to note that various judicial precedents have recognised the difference between games of skill and games of chance. Chopra said stakeholders in online gaming as well as legal professionals are eager to see if a clarification is issued to take into account such a difference and to demarcate different tax rates for games of skills and games of chance.

Technology and gaming lawyer Jay Sayta said if 28 percent GST is charged on the entire entry fee or bet value, as is contemplated, it would result in an almost complete debilitation of the online gaming industry.

“Apart from certain big leagues hosted by large fantasy gaming platforms and some other large-scale contests, no other real money games or formats would be feasible. There would be almost no road for profitability for any real money online gaming company and business models would have to be reassessed. Many companies may either have to shut shop or pivot to non-real money gaming, free to play offerings,” he said.

In-app purchases

Some say the prevailing 18 percent GST is already a hiccup for smaller entities such as content creators and small vendors, who have to either absorb this cost or expect their customers/vendors to pay it.

Rohit Agarwal, founder of Alpha Zegus, a marketing agency specialising in gaming, says if the tax is increased, prices of all forms of in-app purchase items will be hiked.

“India already has one of the lowest in-app purchase frequencies and ticket sizes in the world and this move will take it down further. The audience will either get lesser value for the same money or will have to pay extra for the same value of items, or the company will have to take the hit on it,” he explained.

Secondly, creator revenue will go down as brands will either cut commercials to adjust for the rise in GST or the brands/platforms will have to pump in more funds to account for the additional taxation.

Moreover, companies, especially smaller ones, trying to attract investments will have to drive extra funding, not only to compensate for the rise in the tax bracket but also for the possible increase in customer acquisition costs.

The question of viability comes down to whether the increase in GST rates would apply to revenue generated by operators or to amounts that are not booked as revenue, such as money collected for distribution as prize money.

“If GST is on GGR, in line with international practices, it will still be a viable construct for both sides,” said Siddharth Sharma, head of strategy at Head Digital Works, an online skill-gaming company. “If it ends up being the latter, illegitimate betting and gambling operators that are already visible in our economy will stand to gain the most while legitimate businesses will eventually cease to exist in this space.”

ONLINE GAMING GST