Online Gaming in India: Growth Narrative and Tax Obstacles

Online gaming is a booming industry in India, with the potential to reach $5 billion by 2025. However, the industry faces several tax hurdles that could affect its growth and viability. Some of the major tax challenges faced by the online gaming industry in India are:

• High GST rate: The GST Council has proposed to levy a 28% GST on online gaming, horse racing and casinos, which is higher than the current rate of 18%. The GST will be charged on the full value of the bet or the chip, regardless of the nature of the game. This will increase the tax burden on online gaming companies and users, and reduce their profitability and affordability. According to KPMG, this could result in a loss of Rs 10,000 crore for the industry by 2025.
• Ambiguous value of supply: The GST law does not clearly define the value of supply for online gaming services. There is a lack of clarity on whether GST should be levied on the Gross Gaming Revenue (GGR) or the Contest Entry Amount (CEA) collected from the users. The GGR is the platform fee or commission charged by online gaming platforms, while the CEA is the amount paid by users to participate in online games. The industry has argued that GST should be levied only on GGR, as it represents the actual value addition by online gaming platforms. Saumya Singh Rathore, co-founder of Winzo Games, said that taxing CEA would be unfair and illogical.
• Complex TDS regime: The Income Tax Act imposes a TDS of 30% on the winnings of online gaming users above Rs.10,000 per transaction. The TDS is deducted from the net winnings, which is the difference between the winnings and the CEA. However, the Finance Bill 2023 has introduced two new sections to tax the net winnings of online gaming users at 30% for the previous financial year. The sections also provide for TDS on net winnings at the end of the financial year, which could imply that TDS might also be applicable on winnings below Rs.10,000. This will create a double taxation issue for online gaming users, as they will have to pay tax twice on their CEA. Harsh Jain, co-founder and CEO of Dream11, said that this would discourage users from playing online games and hamper their engagement.

These tax challenges pose a threat to the growth and sustainability of online gaming industry in India. The industry has appealed to the government to reconsider the proposed tax changes and adopt a rational and uniform tax policy for online gaming.