Finance Minister Nirmala Sitharaman on Tuesday reiterated that the valuation rules for levying 28 per cent GST on entry-level bets on online gaming platforms are effective prospectively.

“A clarification on that levy was issued and according to that 28 per cent is the tax. Whom it will apply to and on whom will the incidence fall has been clearly explained. But, about this particular point on valuation rules, I would like to put on record that the valuation rules to exclude winnings are prospective. So, I hope there is no confusion on that,” Sitharaman said while replying to a discussion in the House on the GST (Second Amendment) Bill.

The GST Council, in its August meeting, recommended a 28 per cent GST on online gaming. “Valuation of supply of online gaming and actionable claims in casinos may be done based on the amount paid or payable to or deposited with the supplier or on behalf of the player, excluding the amount entered into games based on the winnings of previous games,” the Finance Minister had said after the Council meeting. Based on changes in the law, new valuation norms come into effect from October 1.

In other words, if one has placed a bet of ₹1,000 in online gaming or horse racing or bought a chip of ₹1,000 in casinos, he will need to pay the GST at the rate of 28 per cent. If he wins, say, ₹300, and the total amount in the next bet or chip becomes ₹1,300, then he will not be required to pay GST on the redeployed winning amount of ₹300. However, if he loses ₹1,000 and places another ₹1,000, then that will be considered a fresh bet or chip and attract 28 per cent GST.

On Tuesday, Sitharaman’s clarification came after MP Sarmishta Sethi said that the GST Council has imposed a 28 per cent GST on the full face value of bets placed on online gaming, as opposed to gross gaming revenue. The decision was implemented from 1st October 2023, with a review after six months. A consequence of the GST Council’s decision is the need to decide whether the amendment is clarificatory and, therefore, has a retrospective application, or whether it should be made effective only after 1st October 2023. “This is important for estimating past period liabilities. Hence, a clarification is needed,” she said.

Commenting on Sitharaman’s reply Shashi Mathews, Partner with Induslaw said that the intent of the government was always to tax at the entry stage i.e., when a user makes a deposit. This covers both first deposit and every subsequent deposits. The intent was never to charge GST on winnings. “The valuation rules also provide the same and the Finance Minister has only clarified the recent amendments. Further Minister has clarified that since these rules are prospective, they will apply on deposits after 1st October. Hope a circular is issued at the earliest, as well,” he said.

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