The amended Finance Act of 2023, followed by the IT Intermediary Amendment Rules notified by the Ministry of Electronics and Information Technology, has given the online gaming industry the confidence that government will stick with the prevalent 18 per cent goods and services tax (GST) on gross gaming revenue (GGR).
Last year, the panel of state ministers set up by the GST Council to look into taxation of online gaming submitted its report to Finance Minister Nirmala Sitharaman recommending 28% GST on gross gaming value (GGV), which is the overall contest entry amount on online gaming, irrespective of whether it was a game of chance or skill.
Stakeholders were worried that applying 28 per cent GST to GGV will lead to a significant rise in tax with an impact as high as 1100 per cent on the business, and 300% on gamers.
The Union Budget 2023 made an amendment to the Tax Deducted at Source (TDS) threshold applicable to online gaming. As per the Finance Act 2023, 30% TDS will be deducted from “net winnings” in the user account at the end of the financial year (i.e. effective from April 1, 2023 instead of July 1, 2023 as was proposed in the Union Budget).
While the industry unequivocally welcomed this new provision, it sought a similar “progressive GST regime”.
“An 18% GST on GGR makes more sense because that's the money earned by the company and it is fair to tax what is earned,” said Manish Maryada, CEO and Co-founder, FELLO, a game-based savings app in Bengaluru adding that 28% on GGV will stop innovative players who are building online gaming companies coming into this sector which will potentially throttle down India's potential in online gaming.
Other industry players and industry bodies agreed.
The final decision on the GST rates will be taken by the GST council in its next meeting, likely in the month of June.