NEW DELHI: The Finance Minister’s clarification in the Lok Sabha that the 28% GST on entry-level bets in online gaming applies prospectively, starting 1 October 2023, does not change the fate of the show-cause notices worth over Rs 1 lakh crore already sent to online gaming companies.
Experts said that the new provisions included in the GST rules come into effect from 1 October 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 Finance Minister in parliament on Tuesday,” says Shashi Mathews, Partner, INDUSLAW
Mathews says the Finance Minister 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, of 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.
“However, as this is a prospective amendment, placing bets from the winning amount will not be eligible for exclusion for the period before October 2023,” he added.