The Finance Ministry is exploring the classification of online gaming based on skill and chance, with the possibility of implementing different GST rates accordingly. According to an official, online games that rely on specific outcomes or involve betting and gambling would be subject to a 28 percent GST, while games that require skill may face a lower 18 percent tax rate. The final decision on online gaming taxation will be made by the GST Council in their upcoming meeting, anticipated to take place in May or June.
The official stressed that not all online games involve chance or gambling, and the Finance Ministry will present its perspective to the council. Differentiating between games of skill and games of chance will be a key challenge in this process.
Currently, online gaming attracts an 18 percent GST on the fees charged by gaming portals. In December of last year, a Group of Ministers, led by Meghalaya Chief Minister Conrad Sangma, submitted a report on GST for online gaming to Finance Minister Nirmala Sitharaman. The group agreed on a 28 percent GST for online gaming but deferred the decision to the GST Council due to disagreements on whether the tax should apply solely to portal fees or encompass the entire consideration, including betting amounts.
Applying a 28 percent GST to the total amount deposited by players for both categories of online games would hinder prize money distribution and potentially drive players towards unlawful portals that evade tax deductions, according to sector experts. This underscores the need for a careful approach in determining the tax rates.
During the COVID-19 lockdown, India experienced a surge in online gaming users, leading to significant growth in the sector. A report by KPMG predicts that the online gaming industry will reach Rs. 29,000 crore by 2024-25, up from Rs. 13,600 crore in 2021.
The question of levying GST on online games has remained unresolved for nearly two years, with several states advocating for lower tax rates on skill-based games. They argue that games requiring skill should not be treated the same as games of chance. The lack of a clear definition has resulted in tax notices being sent to online game portals and subsequent legal disputes.
In a previous report submitted to the council in June 2022, the Group of Ministers recommended a 28 percent GST on the full value of consideration, including entry fees, without distinguishing between games of skill and chance. However, the council requested the group to reconsider their report.
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