No Change In Tax Liability Of Online Gaming Firms After Lok Sabha Discussion: Experts

The Union Finance Minister clarified on Tuesday that the valuation rules for GST on online gaming platforms are effective prospectively. According to experts, it is not a deviation from the existing position and offers no additional clarity to the industry.

The announcement was made while discussing the passing of the Central Goods and Services Tax (Second Amendment) Bill, 2023, in the Lok Sabha.

"The clarification on that (taxation on online gaming) was issued. 28% is the tax and who it will apply to and on whom the incidence will fall is clearly explained... The valuation rules to exclude winnings is prospective. So, I hope there is no confusion on that," Sitharaman said.

The 51st GST Council Meeting had highlighted in August that the 28% GST applicable on online gaming will be levied at the point when the deposit is made.

Therefore, it had clarified that subsequent bets placed from the winning amount on online gaming portals will not attract 28% GST. The clarification was to come in effect starting Oct. 1. This was then cleared by the monsoon session of Parliament earlier this year.

This becomes relevant in the context of GST notices that have been sent to companies for the past period, some on rate of tax and the value of tax. According to a recent response provided in the Rajya Sabha, in all 71 notices totalling Rs 1,12,332 crore have been issued.

Ranjeet Mahtani, partner at Dhruva Advisors, told NDTV Profit that when plainly read, the law operates prospectively and the fate of these notices that have been issued would be unaffected by the statements made by the Finance Minister in the Lok Sabha.

"The amended provisions to levy GST on online money gaming companies came into effect from Oct. 1, 2023. Notices issued—during FY23, up to October 2023—to these companies are for the past periods, which apparently are not under the amended provisions, rather were issued under the previously extant provisions (i.e. Rule 31A of the CGST Rules, 2017)," he told NDTV Profit.

Shashi Mathews, partner at IndusLaw, said that since the rules were never intended to cover for the past period of the notices, the minister's clarification was merely a reiteration of recent amendments.

"The intent of the Government was always to tax at the entry stage i.e., when a user makes a deposit... Further, the minister has clarified that since these rules are prospective, they will apply on deposits after Oct. 1. Hope a circular is issued at the earliest as well," Mathews said.

The need for more clarity from the department remains a common refrain from experts that NDTV Profit reached out to, especially because there is likely to be more emerging transitional issues.

Shilpy Chaturvedi, partner, Deloitte India, said that the disputes regarding applicability of 28% GST on real money games have existed before the new provisions were introduced from October. Such disputes pertaining to past period are only likely to be solved legally in court.

The industry seeks clarity on transitionary issues, such as taxability of opening balance of deposits, as on Oct. 1, 2023. Clarity is also awaited on whether in-game purchases attract GST at 18% or 28%, as the amount is paid from the deposit made by the player but the transaction is solely intended to enhance the gameplay and not with the expectation of winning, she said.