Online Gaming: Implications of GST amendment and retrospective application

livemint.com:

₹1000 each for an online game; where the winning player will get ₹1800 and the online gaming platform collects ‘Platform Fees’ of ₹100 each from ‘X’ and ‘Y’. It is this INR 200 (100 + 100) on which GST at 18% is liable to be deposited by the online platforms.

However, under the new amendment, if the GST authorities now retrospectively attempt to collect GST at 28% on entire ₹2000 i.e., ₹560, it would create a situation of a financial fiasco where platforms will be asked to pay ₹560 in tax when their total revenue itself was only ₹200. For “betting and gambling" (i.e., games of chance), prior to these amendments, GST laws prescribed a 28% GST rate with a special valuation provision to levy this 28% GST on the entire face value of all bets placed.

It is this provision that was being sought to be invoked against online gaming platforms facilitating ‘games of skill’ also for the past period, since GST authorities claim that online gaming companies are not providing facilitation services to the players/users but supplying ‘actionable claims in the nature of chance to win in betting and gambling’. In a recent case before the Karnataka High Court, where the GST authorities had issued a notice in 2022 to an online gaming company demanding ₹21,000 crores (which included the demand retrospectively) with regard to payment of 28% GST on the entire face value of the monetary stakes placed thereon, the High Court, in May this year, quashed the notice after reviewing the legal position at length and has clarified that “games of skill" (like Rummy), even if played with money stakes, cannot be taxed in the same manner as gambling.