The Indian online gaming industry is currently facing a critical and time-sensitive challenge, with tax authorities set to finalize demands based on show-cause notices (SCNs). The Supreme Court is hearing a case that could drastically impact the future of this industry, as it debates whether the Goods and Services Tax (GST) of 28% should be levied on the entire betting amount or just on the platform’s fee. The outcome of this case will be pivotal for e-gaming companies, which are already grappling with steep taxes, unclear regulations, and the looming deadline for tax authorities to act.
The clock is ticking as the tax department races against time. In less than two months, the authorities must issue final demands based on SCNs for several Indian gaming companies, with the deadline for these demands set for February 5, 2025. These SCNs, which were issued after the introduction of the new indirect tax in 2017, will lose their validity if not converted into final demands by that date. For at least three online gaming firms, adjudication orders detailing the tax demand for the 2017-18 period have already been received. The gaming companies are now under pressure to challenge these orders, either by approaching appellate authorities or seeking relief from the courts.
Should the tax authorities issue an order before the deadline, the affected e-gaming companies will have to challenge the demand. However, to initiate the legal process, these companies must first deposit 10% of the disputed tax amount. This will also have to be reflected in their financial statements, adding another layer of complexity for gaming platforms that are already navigating an uncertain tax environment.
The industry is pinning its hopes on the Supreme Court, which is currently hearing multiple petitions challenging the GST levied on e-gaming companies. The case, which involves platforms offering games like Poker, Rummy, and Fantasy Sports, centers on two main issues: the classification of the games as either gambling or games of skill and the application of GST on the entire betting amount rather than just the platform’s fee. The latter is a crucial point of contention, as the fee charged by e-gaming platforms typically ranges from 5% to 20% of the total amount wagered, with some platforms charging even higher fees.
The outcome of the Supreme Court case will have significant implications for the industry, as a ruling in favor of the tax authorities would mean e-gaming companies would be required to pay a much higher tax, based on the full betting amount rather than just the platform fee. This could have a profound impact on the financial stability of gaming firms, which are already operating in a volatile market with fluctuating revenues. On the other hand, if the court sides with the e-gaming companies, it could lead to a reduction in their tax liabilities, allowing them to reinvest in their platforms and expand their services.
However, there is little chance that the Supreme Court will issue a final verdict before the February 5 deadline. As a result, the gaming companies are left with few options, and unless an interim order is passed by the court, they will be forced to either comply with the tax demand or engage in a lengthy legal battle. The industry is on edge, as the tax department’s actions will play a significant role in shaping the future of online gaming in India.
The ongoing dispute highlights the challenges faced by the Indian e-gaming industry in navigating an increasingly complex regulatory environment. As the industry grows in size and popularity, it is becoming clear that the rules governing taxation and classification of games need to be clarified. For now, e-gaming companies are racing against the clock, hoping for a favorable outcome that will allow them to continue operating without the added burden of an overwhelming tax demand.
