Background

The term “online game” refers to games that is offered on the Internet and is accessible by a user through a computer resource. Online Games can range from graphics to virtual worlds populated by many players simultaneously and made available by making certain deposit on part of the users with expectation of earning winnings. This is a part of the sunrise industry with a growing & popular demand for web-app based gaming access.

India Inc. is expecting its multibillion-dollar online gaming industry to more than triple in size over the next four years. According to a report published by Sequoia and BCG, India’s mobile gaming sector will grow from $1.5 billion in revenue in 2020 to $5 billion by 2025.

Further, as per the “India Gaming Report 2021 by Lumikai and Redseer”, India has emerged as the fastest growing gaming market in the world with growth in new paying users (NPU).

The transaction-based games revenues increased by 26% in India and the number of paying players increased by 17%, from 80 million in 2020 to 95 million in 2021, according to a report from EY FICCI (Federation of Indian Chambers of Commerce and Industry).

Status in India

Gambling/betting is illegal in India. Some Indian states have banned such games, citing mental health and addiction concerns. In others states, courts have overturned state bans. Since gambling or betting is illegal in India e.g., activities of betting on football/cricket match, on account of game of chance, the same is legal, if the same is played via online skill-based gaming apps i.e. Dream11/MyTeam11 etc.

In this respect, the All-India Gaming Federation (AIGF) – the apex body for online skill-gaming established in May 2016, has demanded the clear distinction between gambling and “online skill gaming”, where the element of skill surpasses the element of chance.

Accordingly, a clear differentiation is required by a regulatory framework to avoid any unnecessary litigation on the online gaming industry & related sectors in future.

Proposed changes in the tax regime for Online Gaming

Following are the recommendations proposed by the panel of GoM:

  • A flat GST rate of 28% to be made applicable on all online games, including games of skills and chance. The rate will be chargeable on ‘gross revenue’ basis that is, on the total stake value and not on the platform fee paid by the user.

A flat rate of 28% to be made applicable on casinos as well on the total value of chips bought at the time of entry. Furthermore, no GST would be applied on the multiple round earnings or bets made with earnings from previous rounds.

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