The Indian finance ministry is reportedly considering a new GST structure for the online gaming industry, which would differentiate between games of skill and chance and apply different tax rates accordingly.
According to the proposal, games that depend on a particular outcome or are in the nature of betting or gambling would attract the highest GST rate of 28%. Meanwhile, games that involve some amount of skill could be taxed at a lower rate of 18%.
This new proposal comes as a significant relief to the online gaming industry, which had been awaiting clarity on the issue of taxation for some time. Currently, an 18% tax rate is levied on the commission collected by online gaming platforms for games not involving betting or gambling.
A Group of Ministers (GoM) had earlier recommended a uniform GST rate of 28% for online games. However, the latest proposal to differentiate between games of skill and chance and apply different tax rates is expected to bring some relief to the industry.
It is essential to note that the Finance Act, 2023, recognised the online gaming industry as a new-age industry, distinguishing it from gambling and betting. The Finance Bill 2023 introduced two new sections – 194BA and 115BBJ, for TDS on winnings from online games for online intermediaries and computation of taxes for those who earn income from winnings of online games, respectively.
As per the Bill, prize money earned from online games would be taxed at 30% from April 1. Before March 31, 2023, TDS was imposed on the winning amount of online games if it exceeded INR 10,000.
The GoM, headed by Meghalaya Chief Minister Conrad Sangma, agreed to apply the highest GST rate of 28% on betting, casinos and horse racing. The GoM was constituted last year to examine the issue of valuation of services provided by casinos, race courses, and online gaming and to examine if any changes were required in the legal provisions to adopt better means of valuation of these services.
Earlier this month, the Ministry of Electronics and Information Technology (MeitY) notified the rules for online gaming following months of consultation. However, the industry was still awaiting clarity on taxation. The latest proposal to differentiate between games of skill and chance and apply different tax rates according to the type of game is expected to bring some relief to the online gaming industry.