The Indian gaming industry has emerged as a global leader, driven by expansion of digital
excess in the country. India’s gaming market is now the largest gaming market, surpassing
the US and China. The sector is growing tremendously and this growth has led to emergence
of several Indian gaming companies. While the government has also supported this growth
by recognizing online gaming companies under IT Rules and has emphasized the role of Self-
Regulatory Organizations (SROs), beside these there are taxation issues that are needed to
be considered. This includes the taxation differentiation between skill-based and chance-
based games, as well as deciding the applicability of GST rates.
GST REGIME FOR ONLINE GAMING-
The current GST regime differentiates between online games based on skills and chance.
A game of skill is one where the outcome is based on the expertise, practice and experience
of the player and not merely on chance. These games attract a comparatively lower tax rate.
A GST charge of 18% is made applicable under HSN 998439 only on the platform
commission or on gross gaming revenue. 1
Games of chance are treated similar to betting, gambling and horse racing and hence, are
subject to Rule 31A of the Central Goods and Services Tax Rules, 2018 thereby attracting
higher GST rate. A 28% GST is chargeable under the HSN 999692 on the total bet value. 2
The line between the games of skill and chance is thin making it difficult to differentiate
between the two. One such example is the case of Gameskraft Technologies. However, the
tax authorities have decided to club the two categories of games in to one, that is, games of
chance, thereby inviting higher GST rate of 28%.
The recent judgment of the Karnataka High Court (11th May 2023, Writ Petition No 19570 of
2022) emphasized the need to distinguish between skill and chance for GST taxation. The
judgment also stated that there should be no artificial distinction between online and offline
games. For instance, if the Supreme Court classifies rummy or horse racing as games of skill
offline, the same classification should apply to their online versions. The judgment seeks to
distinguish skill and chance and calls for this difference to form the basis for determining the
applicable GST rate.
PROPOSED CHANGES IN THE TAX REGIME FOR ONLINE GAMING-
Following are the recommendations proposed by the panel of GoM-
A flat GST rate of 28% to be made applicable on all online games, including games of
skills and chance. The rate will be chargeable on ‘gross revenue’ basis that is, on the
total stake value and not on the platform fee paid by the user.
A flat rate of 28% to be made applicable on casinos as well on the total value of chips
bought at the time of entry. Furthermore, no GST would be applied on the multiple
round earnings or bets made with earnings from previous rounds.
In 47 th GST Council Meeting the Council has directed the GoM to re-examine the issues
based on casino, race course and online gaming based on further inputs from States and
submit the report in short duration.
TAXABLE AMOUNT-
Another GST issue is determining the taxable amount. The GST Council Group of Ministers
(GoM) has been deliberating on the amount on which the tax should be imposed and the tax
rate. It is crucial to differentiate between GGR (Gross Gaming Revenue) and Gross Gaming
Value (GGV). Online gaming firms primarily act as technology hosts for their own or third-party
skill games. Players deposit contest fees to participate, forming the GGV. After deducting
platform fees, typically ranging from 10-20%, the collected money is distributed to winners,
resulting in the GGR. The GGR represents the company’s actual income, which is a fraction of
the GGV. The Hon’ble Bombay High Court ruled that the total amount pooled by users is not
considered a supply of goods or services, exempting it from GST. Therefore, GST should be
imposed on GGR, not GGV. Charging GST on GGV may end up in the illogical arithmetic of the
tax amount being more than the money earned by the platforms!.
CONCLUSION-
The increase in GST tax rate from 18% to 28% is likely to impact the operations of online
gaming companies. The cost per game for players will also increase by three to four times due
to which the ability to play games per user could decrease significantly thereby, directly
impacting the online gaming companies. The proposal to increase GST rate is significant as it
comes in response to increased revenue receipts from online games and the growing market
share of online gaming industry.