28% GST on deposit refunds issued by online gaming portals, casinos

The ministry of finance notified on Wednesday, September 6, that the whole amount deposited with online gaming platforms and casinos will be considered taxable, meaning refunds made to the player will not get any tax relief, Mint reported.

The changes have been introduced as a part of amendments made to the Central Goods and Services Tax (CGST) rules 2017, updated in CGST (Third Amendment) rules, 2023. The report said the government is yet to announce the date from which the new rules will become effective.

This means that the total amount deposited with a platform or online gaming service will be considered taxable sales value, and any amount returned or refunded by the casino or gaming portal shall not be deductible from the value of the supply of online money gaming. 

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In other words, once a given amount is deposited with the platform, tax will be imposed on the whole amount, irrespective of the part of the deposit returned to the player at a later point, the report added.

Tax Partner at Ernst & Young (EY) Sourabh Agrawal told Mint that the amendments give effect to the recommendations made in the 51st GST council meeting on valuation methodology to be adopted for discharging GST obligation by the gaming industry. 

"This shall effectively settle the ambiguity and uncertainty around this issue. However, the aspect of whether the mere deposit of money in a wallet qualifies as a supply is unclear, and may possibly be challenged by industry," the report quoted Agrawal as saying.

According to the latest norms, a 28 per cent GST would be charged on the total amount paid to online gambling companies and casinos, which rules out any tax relief in the event of a refund or return of money, Senior Partner at AMRG & Associates told Mint.

Recent changes in taxation

The Goods and Services Tax (GST) Council, in its 51st meeting on August 2, 2023, decided to impose a 28 per cent tax on the full face value of the bets placed on online gaming, casinos and horse-trading. The 28 per cent GST rates will come into force from October 1.

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Gaming platforms have argued that such high taxes will discourage players, leading to a lower number of users, eventually hurting the investments and business in the industry.