Mint Primer: Unraveling DGGI's hefty tax notices to online gaming startups

livemint.com:

₹21,000 crore for FY22, but was dismissed by the Karnataka high court in May. However, following the central government's decision to levy a 28% tax on the sector, the Supreme Court halted the Karnataka HC's ruling on 6 September. Startups Dream11 and Games24x7 have since been slapped with nearly ₹60,000 crore in tax demands, and five additional startups may face combined GST demands of nearly ₹40,000 crore soon.

DGGI's total tax claims could amount to ₹1.5 lakh crore, according to at least three industry stakeholders. The DGGI has claimed that Gameskraft misclassified its business, clubbing it under gambling instead of gaming, resulting in these unprecedented tax claims. With the new tax regime, the DGGI, sources said, is filing retrospective tax claims, with intimations suggesting that the appropriate tax slab for online gaming firms should have been the new rate for the previous year as well—as opposed to the previous tax rate of 18% on net earnings.

This difference is to the order of around 15-16x of what the tax rate on the sector was in FY22—which is the period for which DGGI’s claims are based on. Under the previous taxation regime, a gaming startup receiving ₹100 as a user fee, yielding a platform fee of ₹10, would pay 18% GST on the ₹10, totaling ₹1.8. The revised tax structure requires 28% GST on the entire ₹100, raising the tax to ₹28—exemplifying a nearly 15-fold difference in tax computations between the DGGI and the firms.