NEW DELHI: Finance minister Nirmala Sitharaman’s clarification in the Lok Sabha that the 28% GST on entry-level bets in online gaming applies prospectively, starting October 1, 2023, fails to deter the officials from sending show-cause notices to online gaming companies.
Officials have already sent GST notices worth over Rs 1 lakh crore on these companies. As per experts, the new provisions included in the GST rules come into effect from October 1 and the notices already sent to the online gaming companies were not sent under the current provisions.
“So, the fate of those notices remain unaffected by the clarification made by the minister in parliament on Tuesday,” said Shashi Mathews, Partner, INDUSLAW. Mathews said Sitharaman has only clarified the recent amendments. The FM clarifies that the intent of the government was always to tax at the entry stage, when a user makes a deposit. This covers both first deposit and every subsequent deposits.
“The intent was never to charge GST on winnings,” says Mathews. In September, GST field officers issued notices of over Rs 1.12 lakh crore to online gaming companies for alleged tax evasion, prompting legal challenges. Minister of State for Finance Pankaj Chaudhary stated in the Rajya Sabha that 71 show cause notices, amounting to Rs 1,12,332 crore in GST, were issued to online gaming companies during the financial years 2022-23 and 2023-24 (up to October 2023), pending adjudication.
Ankur Gupta, practice leader, Indirect Tax at SW India, says that the FM has clarified that after taxing the initial amount, the exclusion of winning amounts re-used to play will not be chargeable to GST.