GST on Online Gaming: How GST Applies to Online Gaming, Casinos & Lottery
Asharam Swain- May 7
- 7 min read
India's young population, inexpensive internet, and widespread smartphone use have all contributed to the country's notable rise in the online gaming market. With millions of users, this industry includes real-money gambling, fantasy sports, e-sports, and recreational games. Under the Goods and Services Tax (GST) regime, the Indian government has made substantial changes to the way that online gaming, casinos, and lotteries are taxed. A significant ruling for the online gaming sector, casinos, and horse racing enterprises was made at the 50th GST Council meeting, which took place on July 11, 2023. The Group of Ministers assisted the GST Council in making recommendations about the application of GST to online gaming and ending the controversy surrounding "games of skill or chance." Online gaming, casinos, and horse racing are subject to 28% GST at full face value. The GST law has to be amended to include this under its purview. In this article, we will highlight the impact, applicability, and rate of GST on online gaming.
Table of Contents
Latest Updates on GST on Online Gaming in India
Tax revenue has increased immensely by a staggering 412% after the decision to impose a 28% GST on online games, both skill-based and chance-based. This rate will be applicable to all online gaming operations starting in October 2023, including casinos, fantasy sports, and other types of online gambling. Additionally, a 28% GST on the entire amount of money received from online gaming, including the entrance fee, was suggested in the Group of Ministers' (GoM) final report. Additionally, it was suggested that no more GST would be applied to future wagers placed using winnings from earlier rounds after a 28% GST was applied to the original purchase of casino chips. With India being the second-largest gaming market in the world, home to some 442 million gamers, the online gaming business is predicted to continue expanding under the new GST rate, which replaced the previous 18% tax on skill-based games.
Current Applicability of GST on Online Gaming, Casinos, and Lottery
The GST regime now distinguishes between online games that are based on skill and those that are based on chance. 28% GST shall be applied to full face value in accordance with the suggestion made at the 50th GST Council meeting. Additionally, as online gaming now falls under actionable claims, the GST law will shortly be changed to include it in its purview.
Skill-Based Games: A game of skill is one in which the result is not solely determined by chance but rather by the player's talent, experience, and practice. Rummy and fantasy sports games such as Dream 11 are a few examples. Because skill games invite a lower tax rate application, this distinction is significant.
Games of Chance: On the other hand, games of chance are regarded in the same way as horse racing, gambling, and betting. They are therefore liable to the higher GST rate as per Rule 31A of the CGST Rules, 2018.
But there is a problem because there are situations when it can be difficult to distinguish between skills and chance. The tax authorities invited a higher GST tax rate by classifying all of its games—including rummy—as games of chance.
GST Rates on Online Gaming, Casinos, and Lottery
As of now, internet gaming and casino earnings are subject to the following GST rates:
Under HSN 998439, an 18% GST is applicable on the platform's commission/service fee or on gross gaming revenue (total stake value minus the winnings distributed) for skill-based games including e-sport, puzzles, and some card games.
The whole bet value is subject to a 28% GST charge under HSN 999692 for games of chance, including gambling in casinos.
Like games of chance, online lotteries are subject to a 28% GST rate under HSN Code 999694.
Calculation of GST on Online Gaming
Two methods are used by an online gambling platform to retain revenue:
A platform fee or an admission fee (often between 10 and 20 percent) to play the game.
A part of the money is set aside in part to be given out as prizes.
Only 18% of the platform cost is applicable to a game of skill. The rate, conversely, is 28% for a game of chance.
Illustration: For example, ten casino players intend to wager Rs. 500, and the site levies a 10% fee.
Total Bet Amount: Rs. 500 × 10 = Rs. 5,000
GST Calculation: Rs. 5,000 × 28% = Rs. 1,400
The platform will charge Rs. 1,400 as GST, with the total contribution per player being Rs. 640 (Rs. 500 + Rs. 140 GST). For casinos, horse racing, or lottery, the same rule applies, ensuring GST is calculated on the total face value of the bet. However, for skill-based games, the entire gross value will be charged to an 18% GST rate.
GoM Recommendations on GST on Online Gaming
Because it made tax calculations more complicated, the final GoM suggested letting go of the distinction between skill and chance for segregating online gaming. Rather, it offered the following suggestions:
GST rates for all online games, including skill games, stay the same at 28%. Additionally, this rate will be assessed on a "gross revenue" basis, meaning it will be based on the entire stake value rather than just the platform fee.
The entire amount of chips purchased at the moment of entrance will be subject to a flat rate of 28% for casinos. However, betting in more than one round, including wagers using wins from the prior round, is exempt from GST.
Notably, the online skill gaming sector is expected to see a 50–53% increase in taxes if the GoM's new 28% tax rate is implemented. Around 10–20% of the gaming industry's worldwide profits are paid in taxes. The playable value that platform users receive will also decrease with higher GST rates. Online gaming platforms' profit margins will also be further compressed, which may lead to a sharp decline in foreign investment. This rate increase could also backfire because it could lead to a wave of unlicensed operators setting up their gaming platforms abroad.
Impact of GST on Online Gaming
Players: As operators shift the GST burden, players may end up paying more to play online games. At the same time, higher tax rates may result in smaller prize pools or wins. Players must understand the effects of GST on their winnings as well as any necessary compliance, such as the requirement to deduct GST at the source.
Operators: Operators of online gaming platforms must adhere to regular GST filings and thorough record-keeping. The implementation of GST results in extra expenses for compliance, such as the requirement for expert services and specialist accounting software. The tax burden is increased for gaming operators due to the GST rate of 28% on the total bet value. Gaming service prices are impacted by the requirement to absorb or pass on the GST burden, which may have an effect on competitiveness.
Gaming Industry: Market dynamics, such as the introduction of new competitors and the viability of current operators, may be impacted by the GST. As businesses adjust to the new tax environment and look for strategies to lessen the effects of GST, the sector may witness a rise in innovation. The industry can better navigate the GST regime with the support of clear rules and regulations, which will promote stability and growth.
Government: It is anticipated that the GST's inclusion of online gaming will increase tax revenues for the government. More effective tax enforcement and a decrease in tax evasion may result from improved regulation and oversight of the online gambling sector. By collecting money from a quickly expanding industry sector, taxes on online gaming contribute to the expansion of the tax base.
GST on Online Gaming: Gaming Firms vs. GST Authorities
A five- to six-fold increase in collections of the GST on online gaming after October 2023, GST authorities argue that Rule 31A requires uniform taxation for games of skill and chance. The objective is to ensure clarity, prevent underreporting, and stop revenue leakages. Additionally, they note that the GST Council's amendment has full legal backing, giving businesses the chance to challenge its retroactive effect through litigation. However, gaming companies contend that legal skill-based games, like rummy, poker, and fantasy sports, should be taxed at 18% on gross gaming revenue, in accordance with international standards, rather than on face value.
Conclusion
Because it has a direct impact on compliance, financial planning, and overall business strategy, navigating the GST framework for online gambling necessitates a thorough awareness of its complexity. To effectively handle the opportunities and problems that come with this dynamic sector, operators and players alike must be aware of changing regulations and the differences between skill-based and chance-based games. By FY25, the Indian online skill gaming market is predicted to generate revenues of Rs. 29,000 crores. However, its chances have been hurt by the hesitation and ambiguity surrounding the application of GST to online gaming and casinos.
FAQ
Q1. Is GST applicable to online gaming?
Skill-based games are subject to 18% GST while games of chance are being charged a 28% GST rate. The government, however, is thinking of eliminating the distinction and classifying all games to be demerit goods, which would result in a 28% GST tax.
Q2. Is GST applicable to casino earnings?
Currently, a flat 28% GST is applied to all casino earnings.
Q3. How is GST applicable to e-sports and tournaments?
The same 28% GST rate that applies to other online gaming activities is also applicable to e-sports and gaming tournaments.
Q4. Will GST be charged on all casino bets?
Only the money paid to enter the casinos will be subject to GST, according to the GoM's proposal; future wagers placed using wins from earlier rounds will not be.
Q5. How does GST apply to fantasy sports?
As per the GST law, fantasy sports are categorised as online gaming and are subject to a 28% tax.
Q6. Are esports and online games taxed differently?
Online gaming and esports are currently subject to standard GST taxes. The GST rate is 28% for both. Distinguishing between games of skill and chance has been discussed, though, and this could result in different tax treatment down the road.
Q7. Can casinos and online gaming service providers claim Input Tax Credit Claims?
An input tax credit (ITC) can be claimed on goods and services utilised to advance a taxpayer’s business as per the CGST Act’s Section 16(1). However, some limitations determine when ITC can be claimed under Section 17(5).
Q8. What is the place of supply for online gaming services under GST?
As per the GST regulations, the supplier's location is the place of supply for online gaming services.
Q9. Is Reverse Charge Mechanism (RCM) applicable to online gaming?
The Reverse Charge Mechanism (RCM) does not apply to online gaming. The service supplier is directly charged GST.
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