Online gaming companies gear up for legal battles over GST ambiguity

Online gaming companies are gearing up for legal battles against the Indian government following notices to pay 28% GST (goods and services tax) instead of the previous 18%, starting from October 1.

While gaming firms argue that the revised rate only applies from October, the government claims the amendment simply clarifies existing law. Before the October 1 amendment, the law was seen as a grey area, leading to confusion among both companies and officials.

As per a Moneycontrol report, revenue officials admit the lack of clarity in the previous law, with some suggesting a retrospective application. Gaming companies may challenge the notices, arguing that if the law was always clear at 28%, why was there a need for a prospective amendment?

This ambiguity has been under discussion in the GST council for four years, indicating confusion about how to tax the gaming industry. Lawyers argue that treating all online real money games as gambling is incorrect, reported Moneycontrol.

Dream Sports and Gameskraft, prominent gaming companies, are contesting tax demands from GST authorities in multiple courts. Gameskraft faces an alleged GST evasion demand of ₹21,000 crore, currently being heard in the Supreme Court. Simultaneously, Dream Sports, the parent company of Dream 11, has filed a writ petition in the Bombay High Court, challenging a claim estimated at ₹25,000 crore.

In August 2023, the GST council clarified that all online games involving wagers, irrespective of skill or chance, attract 28% GST on the full value of bets placed from October 1. However, retrospective tax demands seem to stem from these amendments, leading to legal challenges from gaming companies.

The government argues that any game played for a stake, whether skill-based or chance-based, is taxable at 28%. The courts will now determine the validity of the pre-October 1 tax notices, leaving the gaming industry and legal experts closely watching the outcome.