Explained: Impact of 28% GST on Online Gaming

In August 2023, the government announced that 28% GST (Goods and Services Tax) would be levied on real money games which includes app based online gaming. As stated by the Finance Ministry, the new GST law will be effective from 1st October 2023. This tax will be applicable on the full value of deposits in online gaming. 

The implementation of the new GST policy stirred a debate, as many online real-money gaming companies wanted the tax to be levied on gross gaming revenues, rather than on the full value of deposits. But the good news is that it has been clarified that overall earnings from the game would not face repeat taxation.

How Will Taxation Work?

Every user on these gaming platforms is required to pay an entry fee to participate

in a particular game. Let us consider an example of online rummy and let’s say a user pays an entry fee to take part in a game. The platform operator deducts a certain amount of the entry fee as platform fee. The platform fee collected by the operator is known as the gross gaming revenue (GGR), while the remaining amount is included in the prize pool. Until now, 18% GST was levied on the gross gaming revenue, and the platform operator was responsible for paying the applicable taxes.

However, the latest GST Policy for Online Games states that the tax will be levied on the full value of deposits at 28%.

Non-Money, Real-Money, and Casual Gaming

Non-money gaming will not be affected by the new GST policy. Only real money gaming will be considered as supply of actionable claim, therefore, a 28% GST will be applicable to the value of deposit made by a user on online money gaming platform . 

There’s no GST applied to casual gaming services offered by these platforms. The main idea behind categorizing the GST implication is to consider the purpose of each game, whether it is a sport, entertainment, or recreation.

The Council carefully decided that games or sports, which are not played for money, will be taxed at 18%, whether they are online or offline. For example, chess is played online. If a player pays an entry fee to participate in the game, then there will be an 18% taxation. It is primarily those games that are played for money on which a 28% GST will be charged.

No GST on Winnings

If players re-enter a game with their winnings, then GST will be exempt in this scenario. If a player loses in a game, there is no scope for GST anyway. 

In the case of winnings, when there is re-entry into a game, it will not be taxed again. It should be noted that during the time of withdrawal of winnings amount, TDS is applicable. Every real cash rummy player should be well versed with TDS Policy for online rummy games as well.