Explained | Govt's tax on online gaming

The calculation involves taxing the deposit amount every time a bet is placed. Industry experts estimate that this approach could result in an alarming increase in tax liability, potentially soaring to 1,300-1,400 per cent on a yearly basis.

The finance ministry had recently notified that online gaming companies will charge 28 per cent GST on full value of bets starting this October. In the backdrop, the Directorate General of GST Intelligence (DGGI) has also calculated the dues on the actual bets placed since 2017 on real-money gaming platforms.

"In the case of Dream11, bets worth ₹1 lakh crore were placed and this has attracted a GST of ₹28,000 crore-plus," an official told Economic Times.

"Similarly, in the case of Games24x7 Pvt Ltd and affiliates, bets of over ₹71,000 crore were placed, which has attracted a GST of ₹20,000 crore-plus," the official added.

Talking about the calculations, the official told the publication that GST will be applied on every individual bet made on these platforms. This means that even if an individual makes multiple bets, each bet incurs a GST of 28 per cent. To put it simply, if someone places four bets, each amounting to ₹100, they would be subject to a 28 per cent GST on each of those bets.

The calculation involves taxing the deposit amount every time a bet is placed. Industry experts estimate that this approach could result in an alarming increase in tax liability, potentially soaring to 1,300-1,400 per cent on yearly basis.

In contrast, these gaming platforms currently pay a tax of 18 per cent on the commission charged on player deposits.

What adds to the complexity is the fact that the outstanding tax amount will accrue interest at a rate of 18 per cent calculated for each financial year. There is also a possibility of penalties if the adjudicating authority deems them necessary.

In the wake of the issuance of show cause notices, the firms have the option to appeal before the adjudicating authority (AA), the official said. However, it's essential to note that interest begins accruing from the date of the notice, they added.

A host of online gaming companies, like Dream11, and casino operator, like Delta Corp, received GST show cause notices last month for alleged short payment of taxes. Separately, a show cause notice was sent to GamesKraft in September last year for alleged GST evasion of ₹21,000 crore.

Meanwhile, another official told ET, "The industry has pleaded that the GST demand raised is 3-4 times their revenues and that they will have to shut shop. They have also said that these bets were placed as early as 2017 and there is no mechanism to trace the customer and ask him/her to foot the GST bill now. This means the dues will have to be paid by the companies themselves. While certain state governments are against 28 per cent levy on fantasy games, the Centre is of the view that this isn't an essential commodity and 28 per cent tax should be levied."