In a recent update as of the 28th of July 2023, the GST Council made an announcement through their official Twitter account. They revealed about the 51st meeting of the GST Council to take place on the 2nd of August 2023, through video conferencing. During this meeting, the Council deliberated upon and gave its approval for the regulations that will enable the implementation of the 28% levy of GST on online gaming and casinos as well as race courses.
Understanding GST on Online Gaming and Casinos
The current applicability of GST on online gaming and casinos, along with online lottery, under the GST registration in India is a critical aspect to comprehend.
Application of GST on Online Gaming and Casinos
Currently, the GST framework classifies online games into distinct categories based on the elements of skill and chance. Recent developments discussed during the 50th GST Council meeting have proposed a significant change in the tax treatment of these games. Under this proposal, a uniform 28% GST rate will be imposed on the full face value of online gaming, necessitating an amendment to the existing GST law to encompass online gaming within its purview, as it is presently categorised as actionable claims.
A crucial distinction is drawn between games of skill and games of chance. A game of skill hinges on the player’s expertise, practice, and experience, with the outcome determined by these factors rather than mere chance. Notable examples include games like rummy and fantasy sports, such as Dream 11. This distinction holds importance, as games of skill are subject to a lower GST rate.
In contrast, games of chance are treated similar to activities like betting, gambling, and horse racing, making them subject to the provisions of Rule 31A of the Central Goods and Services Tax (CGST) Rules, 2018. This rule mandates a higher GST rate for games of chance.
However, an inherent challenge arises due to the fine line that separates skill from chance in certain cases, as exemplified by the recent case of Gameskraft Technology. Tax authorities consolidated all of its games, including rummy, into the category of games of chance, leading to the imposition of a higher GST tax rate.
In a manner similar to games of chance, the GST legislation applies a 28% GST rate to online lotteries.
Rates of GST on Online Gaming and Casinos
Understanding the applicable rates of GST on online gaming and casino revenues is vital. Mentioned below are the current rates of GST on online gaming and casino activities:
Games of Skill (e.g., Esports, Puzzles, Card Games)
For online games that predominantly involve skill, such as esports, puzzles, and certain card games, the existing GST rate is set at 18%. This rate is applicable under HSN (Harmonized System of Nomenclature) code 998439. The 18% GST is levied either on the platform’s commission or service fee or on the gross gaming revenue. Gross gaming revenue is calculated as the total stake value minus the distributed winnings.
Games of Chance (e.g., Casino Gambling)
Games characterised primarily by chance, including casino gambling, fall under a higher GST rate of 28%. This rate is applicable under HSN code 999692 and is imposed on the total value of bets placed by the participants. Games of chance thus stand on a different footing than games of skill.
Upcoming Changes for GST on Online Gaming and Casinos
Following the 50th GST Council meeting held on July 11, 2023, significant changes are on the horizon. It has been proposed that a uniform 28% GST rate will be charged on the full face value of online gaming, casinos, and horse racing. It is important to note that this proposed update is pending notification, as it requires an essential amendment to the existing GST law before it can take effect. The precise implications of this change will become clearer once the amendment is enacted.
Calculating GST on Online Gaming and Casinos
Calculating GST on online gaming and casinos involves different approaches based on whether the game is of skill or a game of chance. Mentioned below is how to compute GST on Online Gaming and Casinos:
For Games of Skill:
1. Determine the Platform Fee: Online gaming platforms typically charge a platform fee or entry fee, which usually ranges from 10% to 20% of the total stake value. Let’s take an example where 10 rummy players plan to bet Rs. 500, and the platform charges a 10% fee.
Platform Fee = Total Stake Value * Platform Fee Percentage * Number of Players
Platform Fee = Rs. 500 * 10% * 10
Platform Fee = Rs. 100
2. Calculate GST on the Platform Fee: For games of skill, GST is charged at a rate of 18% only on the platform fee.
GST Chargeable = Platform Fee * 18%
GST Chargeable = Rs. 100 * 18%
GST Chargeable = Rs. 18
For Games of Chance:
1. Gross Value is Taxable: In the case of games of chance, including casino-style gambling, the entire gross value of bets is subject to a 28% GST rate. This means the entire amount wagered by the participants is taxable.
GST Chargeable = Total Gross Value of Bets * 28%
Example: In the same example as above, if the game is treated as a game of chance or if the earnings are considered akin to a casino bet, the entire platform fee of Rs. 100 would be subject to GST.
GST Chargeable = Rs. 100 * 28%
GST Chargeable = Rs. 28
So, for games of skill, the GST is applied only to the platform fee, calculated at an 18% rate. However, for games of chance, the GST is imposed on the entire gross value of bets at a rate of 28%. It’s important to correctly categorise the type of game to ensure accurate GST calculations.
Advance Rulings on GST on Online Gaming and Casinos
The application of GST on online gaming and casinos in India has been a subject of legal scrutiny, resulting in several significant rulings that provide insights into the taxation of these activities. Some of the key advance rulings and court decisions related to GST on online gaming and casinos are:
1. Gurdeep Singh Sachar V. Union of India and Others:
In this case, the Bombay High Court issued a ruling asserting that GST is not applicable to the player’s entire deposit but only on the consideration collected for the supply of goods or services within the gaming platform. This ruling clarified that the tax liability is restricted to the specific fees or charges related to the gaming services.
2. Varun Gumber Vs. Union Territory of Chandigarh and Others:
The Supreme Court of India, in the case of Varun Gumber, determined that Dream 11, a popular fantasy sports platform, was a game of skill. This decision highlighted that games predominantly dependent on skill are not covered under the Public Gambling Act. It reinforced the distinction between games of skill and games of chance in the context of GST.
3. Skill Lotto Solutions Private Ltd. V. Union of India:
In another significant ruling, the Supreme Court upheld the constitutional validity of imposing GST on lottery, betting, and gambling. This decision affirmed the legality of taxing these activities under the GST framework.
Despite these legal precedents and rulings, the application of GST to the online skill gaming industry in India remains a topic of debate and uncertainty. The industry is experiencing rapid growth, with revenues projected to reach Rs. 29,000 crores by FY25. However, the lack of clarity and hesitation in applying GST to online gaming and casinos have posed challenges to its expansion.
The proposal to categorise the online gaming industry in the same bracket as gambling has raised concerns about its potential impact on this thriving sector. The outcome of this ongoing discussion will significantly influence the future of online gaming taxation in India.
Final Thoughts
The application of GST on online gaming and casinos under the Goods and Services Tax regime in India remains a complex and evolving issue. Recent court rulings have shed light on the distinction between games of skill and games of chance, influencing the GST rates applied to these activities. While these rulings provide some clarity, the industry’s exponential growth and the proposed changes in GST rates create an environment of uncertainty.
The online gaming sector, poised for substantial revenue gains, faces challenges in directing the GST system. The ultimate categorisation of this industry, whether as a game of skill or chance, will significantly impact its growth trajectory and economic contribution, emphasising the need for clear and consistent regulations in this burgeoning sector.
