GST on Online Gaming, Casinos and Horse Racing

50th GST Council meeting held on 11th July 2023 passed a crucial decision for the online gaming industry, casinos and the horse racing businesses. The GST Council with the help of the Group of Ministers, made recommendations on the imposition of GST on online gaming, as well as putting an end to the debate over “games of skill or chance.” 28% GST shall apply to online gaming, casinos and horse racing on the full face value. An amendment must be made to GST law for including this under its scope.

The decision of a 28% GST on both skill-based and chance-based online games has resulted in a significant 412% increase in tax revenue. From October 2023, this rate applies to all online gaming activities, including fantasy sports, casinos, and other forms of online gambling.

Also, GoM’s (Group of Ministers) final report had proposed a levy of 28% GST on the total value of the consideration received in online gaming, including the entry fee. It further had proposed that once a 28% GST has been charged on the initial purchase of casino chips, no further GST charges will apply, even on new bets made from previous round earnings.

Earlier, skill-based games were taxed at 18%, but with the new GST rate in place, the online gaming industry is expected to continue growing, with India being the second largest gaming market globally, housing around 442 million gamers.

Below we elaborate on the current applicability of GST on online gaming and casinos and analyse the implications of the proposed changes if they come to pass.

Latest updates
28th July 2023
The GST Council has announced via their official Twitter handle that the 51st GST Council meeting will take place on Wednesday, 2nd August 2023 via video conferencing. The Council is expected to discuss and approve the rules to implement the 28% GST levy on casinos, race courses and online gaming.

Current Taxability of Online Skill Games and Casinos, and Online Lottery Under GST

To better understand the impact of the proposed changes, let’s first understand the current GST treatment for online gaming and casinos.

GST on Online Gaming

Presently, the GST regime differentiates online games based on skills versus chance. With the recommendation made at the 50th GST Council meeting, 28% GST will be charged on full face value. Further, GST law will be amended soon to include online gaming under its scope as currently it falls under actionable claims.

A game of skill is one where the outcome is dependent on the expertise, practice, and experience of the player and not merely on chance. Some examples include rummy and fantasy sports games like Dream 11. This distinction is important as skill games invite a lower tax rate applicability.

Whereas games of chance are treated similarly to betting, gambling, and horse racing. Thus, they are subject to Rule 31A of the CGST Rules, 2018, which charges a higher GST rate. 

However, an issue arises as the line between skill, and chance can be thin in some cases, as can be gleaned from the recent case of Gameskraft Technology. The tax authorities clubbed together all its games, including rummy, into games of chance, thus inviting a higher GST tax rate.

GST on Lottery

Similar to games of chance, a GST rate of 28% is applicable to online lottery. 

You can learn more about the applicability of GST on online lottery here.

GST Rates on Online Gaming and Casinos 

Currently, the following GST rates are applicable to online gaming and casino earnings:

• For a game of skills, such as esports, puzzles, and some card games, an 18% GST is chargeable under HSN 998439 only on the platform’s commission/service fee or on gross gaming revenue (total stake value – distributed winnings).
• For a game of chance, including gambling at casinos, a 28% GST is chargeable under HSN 999692 on the total bet value.

After the 50th GST Council meeting on 11th July 2023, 28% GST on full face value will be charged on online gaming, casinos and horse racing. The update is yet to be notified as necessary amendment needs to be done in GST law.

How to Calculate GST on Online Gaming and Casinos?

An online gaming platform keeps money in two ways:

• A platform fee or an entry fee (usually 10-20%) for participating in the game.
• A portion of pot money is kept aside for distribution as prize money. 

A Game of skill will charge 18% only on the platform/rake fee charged. To illustrate, if 10 rummy players plan on betting Rs.500 and the platform charges 10% as a fee. Then,

However, for games of chance, the entire gross value will be liable to a 28% GST rate. Thus, in the previous example, on treating the game as a game of chance or treating those earnings similar to a casino bet, the tax incidence increases to Rs.28.

GoM on GST on Online Gaming and Casinos 

The final GoM proposed to do away with the distinction of classifying online games into skill or chance, as it complicated tax calculations. Instead, it made the following recommendations:

• A flat GST rate of 28% on all online games, including skill games. Further, this rate will be chargeable on a ‘gross revenue’ basis, i.e., on the total stake value and not simply on the platform fee paid.
• For casinos, a flat rate of 28% will apply to the total value of chips bought at the time of entry. However, no GST is applicable on betting made in multiple rounds, including bets made with winnings from the previous round.

To put this into context, if, in the previous example, the gaming platform charges 28% GST, then the tax becomes:

This means that while the platform has only earned Rs.100 in commission, it will be liable to pay Rs.280 in GST, which makes it unviable. 

According to some press reports, if the GoM’s new rate of 28% tax goes into action, then the online skill gaming industry is likely to experience a 50-53% rise in taxation. Globally, the gaming industry pays approximately 10-20% of its earnings as taxes.

Higher GST rates will also lower the playable value received by the platform users. Additionally, online gaming platforms will find their profit margins squeezed further, which can, in turn, result in a massive drop in foreign investment.

This rate hike can also be a massive misstep as it may result in a spate of unlicensed operators who set up their gaming platforms offshore. 

Input Tax Credit Claims for Casinos and Online Gaming Service Providers

As per Section 16(1) of the CGST Act, a registered tax person can avail input tax credit (ITC) on goods and services used in furthering the business. However, Section 17(5) of the CGST Act imposes some restrictions for when ITC cannot be claimed, which are explained in detail here.

Advance Rulings on GST for Online Gaming and Casinos

The application of GST to gaming and betting has been challenged in several Indian courts. Below, we encapsulate some such rulings.

In Gurdeep Singh Sachar vs Union of India and Ors, the Bombay High Court ruled that GST is not applicable on the player’s entire deposit, but only on the consideration collected for the supply of goods or services within the platform. 

Similarly, in Varun Gumber v. Union Territory of Chandigarh and Ors, the Supreme Court of India (SC) found that Dream 11 was a game of skill, and such games aren’t covered under the Public Gambling Act.

Also, the SC upheld the constitutional validity of levying GST on lottery, betting, and gambling in Skill Lotto Solutions Pvt Ltd. vs Union of India.

The online skill gaming industry in India is booming, with revenues expected to reach Rs. 29,000 crores by FY25. However, the dithering and lack of clarity on applying GST to online gaming and casinos have harmed its prospects. Unfortunately, putting the online gaming industry in the same category as gambling (as proposed) may not be in the best interests of this thriving industry.