India: Supreme Court to decide GST fate of online gaming industry

India’s Supreme Court is currently reviewing a high-stakes case that could redefine how goods and services tax (GST) applies to online gaming. The ruling is expected to address the applicable GST rate for online games in previous years, whether the 28% rate can be applied retrospectively, and how taxable amounts should be calculated.

Key issues under consideration

Tax rate dispute: The central question is whether online games played for real money—such as rummy—should be taxed at 28% as gambling, or at 18% as games of skill.

Tax base: The tax authority argues that GST should be levied on the full value of bets placed. In contrast, gaming companies assert that GST applies only to the platform’s service fee, which is a small portion of the total amount wagered.

Retrospective application: Although the law was amended in October 2023 to apply a flat 28% GST on all online gaming—regardless of whether skill or chance is involved—the tax department began issuing notices even for earlier periods, claiming the higher rate was always applicable.

Industry impact and legal background

The Karnataka High Court previously ruled in favor of Gameskraft, quashing a Rs.210 billion (approx. $2.5 billion) tax demand. That decision is now under appeal before the Supreme Court.

Multiple companies have since received tax demands, including amounts of $670 million, $750 million, and $130 million, covering tax shortfalls, interest, and penalties dating back to 2018.

Legal representatives argue that applying tax changes retrospectively undermines business certainty and investor confidence.

Investor and legal community response
Legal professionals and investors have raised concerns over inconsistent tax policy and retroactive enforcement, warning of negative implications for the wider investment climate.

Global investment funds with stakes in India’s online gaming sector are closely monitoring the outcome.

The Court’s ruling is expected to be pivotal for the future of real-money gaming in India, with potentially broad consequences for taxation policy and regulatory clarity in the digital economy.

Source : https://www.globalvatcompliance.com/globalvatnews/india-online-gaming-gst/