The Central Board of Indirect Taxes and Customs (CBIC) has evaluated the GST liabilities of the gaming firms in India, and it has been found that they were taxed at 18% on their gross gaming revenue, which was meant for skill-based games, instead of the legally prescribed 28%. This has led to a tax shortfall of approximately Rs 45,000 crore.
The distinction between skill-based and chance-based games for tax purposes has been a topic of debate. Some gaming companies argued that their offerings were skill-based and thus should be subject to the lower tax rate. However, in July, the GST Council amended the laws to remove this distinction and mandated a uniform 28% tax rate on the total bet value.
The Directorate General of GST Intelligence (DGGI) is in the process of sending notices to these companies to address the tax shortfall. Real money gaming firms, which make up around 77% of the online gaming market, have paid less than Rs 5,000 crore in GST since 2017, even though the actual tax liability is estimated to exceed Rs 50,000 crore.
The situation has led to legal challenges, with the Centre filing a special leave petition in the Supreme Court to challenge a decision by the Karnataka High Court regarding tax demands on Gameskraft, one of the online gaming companies.
The recent amendment to the Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax (IGST) laws has clarified the GST liability of online gaming companies, making it clear that every online money gaming company will attract a 28% GST rate.