Overseas gamers too will have to pay 28% GST on domestic e-gaming platforms

Domestic online gaming companies will be required to deduct 28 per cent GST on bets placed from overseas locations, including by foreign players, as such bets will also be treated as actionable claims.

The amendment to this effect has been approved by Parliament in the Integrated GST (IGST) Act on Friday.

The GST Council had last week cleared changes in Central GST (IGST) and IGST laws to levy 28 per cent tax on full face value of bets in online gaming, casinos, and horse race clubs.

The amendment in IGST Act gives powers to the Government to notify such goods, so that in case of import of such goods IGST can be levied and collected as regular inter-State supply under provisions of IGST Act.

Tax experts said this amendment is aimed at plugging the loophole with regard to the collection of IGST from bets coming from overseas locations.

Currently, in case of import of intangible goods such as actionable claims involved in or by way of online money gaming, which do not physically cross customs frontier, IGST cannot be collected through Customs.

AMRG & Associates Senior Partner Rajat Mohan said the Government has amended the tax law to provide that international players paying money for betting, gambling, horse racing, lottery or online money gaming from outside India would be treated at par with domestic players for payment of taxes.

"Thereby online gaming companies would need to pay tax full tax on 'buy-ins', irrespective of the payor and his source of payment. This IGST Act amendment results in a new provision of law, that will arrest any future litigation on technical grounds," Mohan added.

EY Tax Partner Saurabh Agarwal said by defining what constitutes online gaming, who is liable to pay GST, and how the GST is to be calculated, the amendments would help to eliminate uncertainty and ambiguity.

"The amendments would also help to defend past litigations. However, one issue that remains unresolved is whether the deposit of money in an online gaming wallet constitutes a supply. This issue is likely to be subject to interpretation in time to come," Agarwal said.

Shardul Amarchand Mangaldas & Co Partner Rajat Bose, the coverage to include virtual digital assets ensures that any form of consideration (real, crypto, digital) will now be covered under the ambit of tax, and transactions in cryptocurrency etc. cannot be a loophole to escape GST.

The provision to tax offshore online gaming companies through a simplified registration in India, and the stringent provisions to curb tax evasion by such players show the seriousness of the government to enforce the regulation and collect the intended revenue from the industry.

"The Government has not made a distinction between games of skill and games of chance. Further, the taxation is imposed on a higher amount that may not be actually recorded as revenue for a gaming company. Given that the above is in the teeth of Supreme Court precedents and provisions of the GST laws, judicial challenges can be forecast in writ jurisdiction, in both the central and state legislation," Bose said.

Nangia Andersen India, Director- Indirect Taxation, Tanushree Roy said the amendments to GST law aim to provide clear definitions for terms such as "online gaming," "online money gaming," "specified actionable claim," and "Virtual Digital Asset."

"By doing so, it brings much-needed clarity to the interpretation of these terms under GST and helps determine the taxability of activities such as casinos, horse racing, and online gaming under GST," Roy added.

The CGST amendment bill defines 'online gaming' as a game on the internet or an electronic network.

'Online money gaming' means online gaming in which players pay or deposit money, including virtual digital assets (VDAs), in the expectation of winning money or VDAs, in any event including game, scheme, competition or any other activity, whether or not its outcome or performance is based on skill, chance or both.

With the amendment to GST law, horse racing, casinos, online money gaming will be treated as actionable claim similar to lottery, betting, and gambling.