The Ministry of Electronics and information Technology (MeitY) in its draft regulation has defined online game “as a game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary.”

Real money online games are where the user deposits cash or kind with the expectation of earning winnings on that deposit. These online gaming platforms can be fantasy, e-sports, or skill-based online gaming platforms. Cards-based games such as poker or rummy are also a part of it.

What is the size of this industry? Which are the prominent companies in this industry?

India’s gaming industry is expected to become a $5 billion industry by 2025, growing at a compounded annual growth rate of 28-30 per cent. The real-money gaming segment generated over ₹10,000 crore in revenue in 2022.

Some of the prominent companies in the sector are Games 24*7 which also operates Rummy Circle, Dream 11, MPL, Ace2Three, Gameskraft, apart from several others.

Also read: Online gaming players write to Finance Minister, PM, to reconsider 28 per cent GST

What was the rate at which these companies are taxed now and what will change following the 50th GST Council meeting?

Currently, online gaming companies pay the government a GST of 18 per cent levied on the Gross Gaming Revenue (GGR) or the platform fee. Besides this, TDS of 30 per cent is deducted on the winnings. Online gamers and poker players did not have any additional impact of GST on the value of bets placed by them, except for the platform fee collected by the online gaming company, till now.

Earlier this week, the GST Council announced a 28 per cent GST levy on the total game value for online gaming, horse racing, and casinos, equating skill-based online games (non-gambling games) with online games of chance (gambling games) under India’s tax regime.

This means that a gamer will have to pay 28 per cent GST on the amount deposited to play the game. Besides this, he will have to pay the platform fee and bear 30 per cent TDS on net winnings.

Let us assume, a player has placed a bet of ₹100, which includes platform fee of ₹10. Earlier, a player would have paid ₹1.80 as GST.

Now, after the GST Council’s decision, he would have to pay ₹28 as GST, which could be deducted from his initial sum. In the above example, the player would now have only ₹62 (₹100 which is the bet less the platform fee of ₹10 less 28 per cent GST = ₹62) to play with.

Also read: 28 per cent GST an existential threat, say online gaming companies

What will be the likely impact of this high GST rate on consumers?

The high tax rate will make it more expensive for players to participate in online gaming. This could lead to players seeking out offshore or illegitimate platforms that do not charge GST, or that charge a lower rate. This would be a major setback for the legitimate online gaming industry in India, as it would allow these offshore and illegitimate platforms to gain an unfair advantage. This could have several negative consequences, including the proliferation of gambling addiction and the loss of government revenue

The Internet and Mobile Association of India (IAMAI) said that it is deeply concerned by the GST Council’s decision to levy 28 per cent GST on the full face-value of the consideration instead of just the platform fee.

“Online gaming is distinct from gambling & betting. Hence taxing India’s legitimate online gaming industry with gambling activities will not only massively dent the burgeoning online gaming sector but will also threaten to make the entire $20 billion Indian online gaming sector an unviable business model. The new tax structure is contrary to global best practices, where GST on online gaming is levied on Gross Gaming Revenue (GGR) and platform fee. The net effect of this levy will result in an approximate 1,000 per cent increase in GST on the industry and will cause irreversible damage to the $2.5 billion investments in the Indian online gaming start-up ecosystem and lead to a complete halt on any prospective FDI,” it said.

The government is however clear that this is a mechanism to discourage gambling specially by youngsters and thus the levy.