The Goods & Service Tax (GST) Council recently constituted a panel of Group of Ministers (GoM) to examine and formulate a revised GST tax structure for online gaming industry.


Changes Proposed

Following changes were proposed in the tax regime for online gaming by the panel of GoM in the GST Council meeting:

  • A flat GST rate of 28% to be made applicable on all online games, including games of skills and chance.
  • The rate will be chargeable on ‘gross revenue’ basis that is, on the total stake value and not on the platform fee paid by the user.
  • This proposal to increase GST rate is significant as it comes in response to increased revenue receipts from online games and the growing market share of online gaming industry in India.


Response from Gaming Industry

  • The recommendations have attracted opposition from gaming companies as increase in GST tax rate from 18% to 28% is likely to impact their operations.
  • Also, the cost per game for players will also increase by three to four times due to which the ability to play games per user could decrease significantly thereby, directly impacting the online gaming companies.


Need to regulate online gaming

  • The Covid-19 pandemic saw a huge spurt in the popularity of online games and the online gaming industry revenue in India is expected to reach $5 billion by 2025.
  • The industry grew at a compound annual growth rate (CAGR) of 38% in India between 2017-2020, as opposed to 8 per cent in China and 10 per cent in the US.


Concerns about Imposing GST on Gross Revenue

  • The online gaming service is based only on the platform fee and not on its entire collection.
  • Levying GST on the entire amount collected by the gaming company would drive the entire industry underground and create a black market.
  • Such steps cannot prevent people from playing online games due to their growing popularity.
  • There is a thin line between a game of skill and chance.
      • The Public Gambling Act 1867 states that nothing in the foregoing provisions of this Act contained shall be held to apply to any game of mere skill wherever played.
      • Hence, the Act expressly excludes the games of skill from the purview of the expression “gambling”.
  • The online games are played through servers and electronic equipment that can be located anywhere in the world and may lead to unnecessary investigative activity on the part of the GST authorities.
  • It is also possible that many online games in India will shut down and the business will go overseas that will result in lower tax revenue and large-scale unemployment.
  • Section 194B of the Income-Tax Act already requires tax deduction of 30% if the winnings are more than Rs 10,000 and this is remitted to the government.
      • As a result, the action remains legal and subject to oversight and control not only by the GST authorities but also by the IT Department.
      • Levying a further GST at 28% on the winnings in addition to the already existing TDS of 30 per cent on the winnings will be the death of the online gaming industry.


Observations of Supreme Court

  • The SC has held that money involved in the playing of a game of skill would not amount to gambling under the Public Gambling Act.
  • Also, the SC upheld the constitutional validity of levying GST on lottery, betting, and gambling.


Way forward

  • Any online gaming platform, domestic or foreign offering real money online games to Indian users will need to be a legal entity incorporated under Indian law. These platforms will also be treated as ‘reporting entities’ under the Prevention of Money Laundering Act (PMLA), 2002, and will be required to report suspicious transactions to the Financial Intelligence Unit-India (FIU-IND).
  • A central-level law for online gaming needs to be bought and be applicable to real money and free games of skill, including e-sports, online fantasy sports contests, and card games, etc.
  • However, casual games with no real money element in the form of stakes may be kept outside the scope of such rules.
  • Also, it is economically unwise to look at online games from a purely GST perspective and the employment potential of online games must also be examined.



The online gaming industry in India is thriving, but the lack of clarity on the application of GST to online gaming has damaged its potential. Grouping the online gaming business with gambling (as recommended) may not be in the best interests of this growing industry. A comprehensive regulatory framework monitored by a competent regulatory agency is required to stop the flow of black money in online sports gaming and to stop any illicit activities associated with it.


SourceThe Indian Express


QUESTION – Experts believe that the focus of government to regulate online gaming industry should be balanced by not over-regulating the industry, especially in terms of increased tax collections than the optimum level. Discuss the issue in brief and suggest a way forward.