New 28% tax on online gaming comes into play from October

India will begin levying a 28% goods and services tax (GST) on the amounts deposited for betting on online games, casinos, and horse racing from October, finance minister Nirmala Sitharaman said. 

The government took the decision at a special meeting of the Goods and Services (GST) Tax Council – the apex decision-making body for the indirect tax – that was convened virtually on Wednesday, despite online gaming companies and investors voicing their concerns. 

Under the new regime, the tax will be calculated on the total amount a player pays the supplier. If a player deposits ₹1,000 with a casino and places bets worth ₹500, the tax will be levied on ₹1,000, and not ₹500. 

The new levy will come into force following amendments in Central and State GST law, Sitharaman said, adding that the government will review the regulations after six months. 

While redeployed winnings will not be subjected to the indirect tax, the GST Council has decided to make the registration of offshore gaming companies in the country mandatory. 

The finance department’s intelligence cell will keep track of platforms changing IP addresses to evade taxation, the government said, adding that such gaming companies will face action, including denial of permission to operate in India. 

To begin with, the Union government will introduce the amendments to the central GST legislation in the ongoing monsoon session of Parliament. 

Once the legislation goes through, the states will pass amendments in their respective state assemblies before the law is implemented by 1 October. 

While gaming platforms have welcomed the government move to exclude repetitive taxation, or levying a tax on redeployed winnings, they have voiced concerns that rampant illegal offshore gambling websites will thrive as efforts to block them have been ineffective so far.  

“The amendment disproportionately affects companies in their early growth stages, especially those in the startup and the MSME (micro-, medium- and small-scale enterprises) sector,” the All-India Gaming Federation (AIGF) said in a statement. 

Such firms will not be able to survive in the face of increased tax liability of up to 500% in the wake of the new regulations, AIGF said. 

Established gaming companies may be able to scrape through the change, but even their revenues and valuations will be significantly affected, industry experts said. 

“Gaming companies are hopeful that the decision will be reviewed six months on; otherwise, it will jeopardize the booming gaming industry,” Chartered Accountant Abhishek Raja Ram said. 

The finance ministers of all states attended the virtual meeting on Wednesday. 

Sitharaman said that while Delhi finance minister Atishi Singh opposed the tax and asked the GST Council to return the proposal to the group of ministers (GOM), her counterparts from Goa and Sikkim sought the levy on the gross gaming revenue and not on the full value of amount deposited. 

A levy on gross gaming revenue taxes only the operator’s profits, while a levy on the full value of amount deposited taxes the total amount wagered, regardless of wins or losses. 

The GST Council, in its 50th meeting on 11 July, had discussed the second report of the group of ministers on casinos, race courses, and online gaming.  

The report had recommended that actionable claims supplied in casinos, race courses, and online gaming may be taxed at 28% of total face value, irrespective of whether the activities are a game of skill or chance. 

At its 51st meeting on Wednesday, the GST Council decided that payments received and winnings paid for virtual digital assets such as cryptocurrency by gaming firms and casinos will face GST. 

The panel also recommended inserting a specific provision in the Integrated Goods and Services Tax Act,  2017, to provide for liability to pay GST on the supply of online money gaming by a supplier located outside India to a person in India, while also making a distinction between “online gaming” and “online money gaming”.