Approximately 12 online real money gaming companies are facing pre-show cause notices from the Directorate General of GST Intelligence (DGGI) regarding their tax liabilities amounting to Rs 55,000 crore, as reported by the Economic Times. Dream11, a prominent gaming company, is reportedly facing the largest tax notice, totalling Rs 25,000 crore. A pre-show cause notice, which precedes the formal issuance of a show-cause notice by the income tax department, is intended to inform companies about the extent of their outstanding dues.
The list of companies receiving these notices, as per the report, also includes Head Digital Works and Play Games 24*7.
According to experts cited in the report, the cumulative value of all the notices is anticipated to reach Rs 1 trillion. These notices have been issued following an increase in GST rates for real money games to 28 per cent on the total bet placed at the entry-level, a change set to take effect from October 1.
In 2022, Gameskraft Technology, an online gaming company based in Bengaluru, was served a tax notice amounting to Rs 21,000 crore, marking the largest such claim in the history of indirect taxation. However, this notice was later nullified by the Karnataka High Court. The revenue department challenged the court’s decision, and the Supreme Court recently upheld the High Court ruling, scheduling further hearings for later this month or early next. This legal decision is expected to establish a precedent for investigating online gaming matters.
Apart from targeting online platforms, the DGGI is reportedly taking action against casino operators for alleged tax evasion. Last week, Delta Corp received a tax notice amounting to Rs 11,139 crore, inclusive of interest and penalties, for purportedly not paying GST on the gross bet value. Delta Corp has affirmed its intent to exhaust all available legal avenues to challenge these actions and proceedings.
The recent tax rule has clarified that taxes will be imposed on the money users pay for online games, without differentiating between games of skill and chance. This has been a contentious issue in many cases. The new rule also offers a revised definition of “online money gaming,” encompassing both skill-based and chance-based games. “Online gaming” is now defined as “an offering of a game on the internet or an electronic network, including online money gaming.”
Despite opposition from select states such as Goa, Sikkim, and Delhi, the GST Council imposed the highest tax rate in its July meeting without requiring a vote due to widespread agreement among most states. Subsequently, Parliament approved the proposed amendment in the Central GST Act.