GST Implications on Online Gaming

1. Online Gaming Industry in India - An overview:

Since 2020 the online gaming industry has experienced a tremendous growth globally due to the COVID-19 Outbreak which forced many people to stay at home and find reliance on various virtual means to keep themselves entertained and to connect with other people. At present, even though people have resumed back their normal routines which includes interacting with others in person and not entirely dependent on virtual means to connect with people, the online gaming industry is still witnessing a steady growth.

As per one of the articles on Online Gaming published in “The Hindu”, the online gaming industry in India is predominantly a home-grown-start-up ecosystem growing at 27% CAGR [Compounded Annual Growth Rate]. It is expected to reach Rs. 33,243 Crores by Financial Year 2028. The growth of online gaming industry is largely attributed to factors like widespread smartphones availability, improved internet connectivity, evolution of online gaming content, a growing and advanced youth population.

2. Legal parlance of online gaming industry under GST: GST Council in its 50^th and 51^st GST Council Meeting proposed substantial amendments to the taxation regime on online gaming, actionable claims supplied to casinos and horse racing etc. In accordance with the said changes, online gaming will be taxed at flat 28% irrespective of such activities being a game of skill or chance.

Further, vide NN 48/2023 – CT Dated 29.09.2023 w.e.f. 01.10.2023, below mentioned two causes were inserted in Section 2 of the CGST Act, 2017 with respect to online gaming:

i. Section 2(80A) of the CGST Act, 2017: "online gaming" means offering of a game on the internet or an electronic network and includes Online Money Gaming;

ii. Section 2(80B) of the CGST Act, 2017: "online money gaming" means Online Gaming in which players pay or deposit money or money`s worth, including Virtual Digital Assets, in the expectation of winning money or money`s worth, including Virtual Digital Assets, in any event including game, scheme, competition or any other activity or process, whether or not its outcome or performance is based on skill, chance or both and whether the same is permissible or otherwise under any other law for the time being in force.

(A) GST on Online Gaming prior to 1^st October, 2023:

Prior to 1^st October 2023, the GST Regime differentiated online games based on skills versus chance. For a game of skills, such as esports, puzzles, and some card games, an 18% GST is chargeable under HSN 998439 only on the platform’s commission/service fee or on gross gaming revenue i.e. Total Stake Value less distributed winnings.

A game of skill is one in which the player's knowledge, experience, and skill determine the result rather than just random chance. Rummy and fantasy sports apps like Dream 11 are a couple of examples. This distinction is crucial since skill games are eligible for a reduced tax rate. 

For a game of chance, including gambling at casinos, a 28% GST is chargeable under HSN 999692.The games of chance are treated similarly to betting, gambling, and horse racing. 

(B) GST on Online Gaming after 1^st October, 2023

50^th GST Council Meeting was held on 11^th July 2023 under the chairpersonship of Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitaraman. The 50^th GST Council Meeting recommended that actionable claims supplied in online gaming, and horse racing shall be taxed at the rate of 28% on full face value, irrespective of whether the activities are game of skill or game of chance.

Via NN 11/2023 CT(R) Dated 29^th September 2023 amendment for taxability on online gaming was made in Schedule IV of NN 01/2017 CT(R) Dated 28^th June 2017. Relevant extract of Sr. No. 227A of the NN 01/2017 is reproduced below for reference:

CBIC vide NN 50/2023-CT Dated 29.09.2023 seeks to amend the Principal Notification 66/2017-CT Dated 15.11.2017 to exclude the registered person making supply of specified actionable claims as defined u/s 2(102A) of the CGST Act, 2017.

As per Section 2(102A) of the CGST Act, specified actionable claims means the actionable claims involved in or by way of :

• betting;
• casinos;
• gambling;
• horse racing;
• lottery; or
• Online Money Gaming.

From the above mentioned amendment in NN 01/2017 – CTR Dated 28^th June 2017 it can be inferred that w.e.f. 01^st October 2023 28% tax rate will be applicable to online gaming on its full face value.

Let us try to understand the amendment with help of below mentioned examples:

GST on online gaming prior to 01^st October, 2023:

If the bet amount is Rs. 100 and the platform fee is 20% of bet amount i.e. Rs. 20. Then GST was applicable at 18% of Rs. 20 [GST – Rs.3.6] i.e. Platform fee.

GST on online gaming w.e.f. 01^st October, 2023:

If a player bets Rs. 100 then 28% GST on the complete amount of bet value i.e. Rs. 100 shall be levied.

Further, 51^st GST Council Meeting held via video conferencing on 02^nd August, 2023 recommended to insert a specific provision in IGST 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, for single registration in India for the said supplier through a simplified registration scheme.

Via Advisory No. 239 dated 17^th October, 2023 it was stated that any person located outside Taxable territory making supply of Online Money Gaming to a person in Taxable territory, is liable to get registered in GST and is required to pay tax on such supply.

Clause (xia) was inserted in Section 24 of the CGST Act, via NN 48/2023 – CT Dated 29.09.2023 through which registration was made compulsory for every person supplying Online Money Gaming from a place outside India to a person in India was made.

Further, Via NN 48/2023 – CT Dated 29.09.2023 an amendment was made in Para 6 of Schedule III by adding specified actionable claims such as betting, gambling, lottery, casinos, horse racing and online gaming were specifically put under the ambit of GST.

The Council also recommended that valuation of supply of online gaming and actionable claims in casinos may be done based on the amount paid or payable to or deposited with the supplier, by or on behalf of the player (excluding the amount entered into games/ bets out of winnings of previous games/ bets) and not on the total value of each bet placed.

Further, CBIC vide NN 49/2023-CT Dated 29.09.2023 seeks to notify following supply for the purpose of Section 15(5) of the CGST Act, 2017:

1. supply of Online Money Gaming;
2. supply of Online Gaming, other than Online Money Gaming; and
3. supply of Actionable claims in casinos.

In order to give impact to the above recommendation Rule 31B was inserted via NN 51/2023 – CT Dated 29^th September 2023 w.e.f. 01^st October, 2023. Extract of Rule 31B of the CGST Rules is reproduced below for reference:

Rule 31B of the CGST Rules: Rule 31B of the CGST Rules has prescribed the provisions for value of supply in case of Online Gaming Industry including Online Money Gaming

Notwithstanding anything contained in this chapter, the value of supply of Online Gaming, including supply of Actionable claims involved in Online Money Gaming, shall be the total amount paid or payable to or deposited 

with the supplier by way of money or money’s worth, including Virtual Digital Assets, by or on behalf of the player:

Provided that any amount returned or refunded by the supplier to the player for any reasons whatsoever, including player not using the amount paid or deposited with the supplier for participating in any event, shall not be deductible from the value of supply of Online Money Gaming.

Thus, all online games involving bets, irrespective of skill or chance, will attract a GST rate of 28% on the full value of the bets placed, and not on the gross gaming revenue.

Online Gaming under the IGST Act:

The CBIC vide NN 03/2023 – IT Dated 29.09.2023 w.e.f. 01^st October 2023 seeks to notify the supply of online money gaming as the supply of goods on import, on which, IGST shall be levied and collected u/s 5(1) of the IGST Act, 2017.

1. Advance Ruling on GST for Online Gaming and Casinos:

Gurdip Singh Sachar Vs Union of India & Ors: The Bombay High Court ruled that GST is not applicable on the entire deposit received from the player but only on the consideration which is payable / collected for the supply of goods or services or both within the platform.

Further, the Hon’ble Supreme Court also upheld the constitutional validity of levying GST on lottery, betting, and gambling in Skill Lotto Solutions Pvt. Ltd. vs. Union Of India.