The Central government is considering taking action against the Karnataka High Court’s order that quashed a tax evasion notice of INR 21,000 crore issued to Bengaluru-based online gaming startup Gameskraft Technology. Before approaching the Supreme Court, the government may discuss the matter with the Goods and Services Tax (GST) Council, according to CNBC Awaaz.
Last year, the Directorate General of GST Intelligence (DGGI) issued the INR 21,000 crore show-cause notice to Gameskraft, alleging tax evasion on a betting amount of INR 77,000 crore between 2017 and June 2022. However, in a recent order, the Karnataka High Court dismissed the notice and rejected the argument that skill-based games should be considered as betting or gambling if played for money.
Although the Karnataka High Court did not classify skill-based games as gambling, the Central government might challenge this interpretation. It believes that all online games should be treated as a form of gambling, subject to a 28% GST rate. Previously, there were discussions within the finance ministry to classify online games into two categories – skill-based and chance-based – for the purpose of levying a differential rate of GST.
The online gaming industry is seeking clarity on GST regulations. Currently, a tax rate of 18% is applied to the commission collected by online gaming platforms for games that do not involve betting or gambling.
India’s gaming market has been growing rapidly, with an estimated worth of $2.6 billion in FY22, according to a report by VC firm Lumikai. It is projected to reach $8.6 billion by FY27, with the number of gamers in India reaching 507 million in FY22, a 12% increase from 450 million in FY21.
The country has witnessed the emergence of numerous gaming startups in recent years, including unicorns such as MPL, Dream11, and Games 24×7. With the increasing popularity of online gaming, the industry is eagerly awaiting regulatory clarity to facilitate its continued growth.
