28% GST Leviable on Actionable Claims in Form of Betting and Gambling in Online Gaming; Finance Ministry Clarifies before Parliament 

The Monsoon session of Parliament commenced on July 20th, 2023, and is scheduled to conclude on August 11th, 2023. During this session, various issues were discussed. The 50th and 51st Goods and Services Tax (GST) Council sessions clarified that a 28% GST will be applicable to online games and areas related to betting.

However, the ministry has to clarify different questions raised by the MPs in the Parliament. With regards to the clarifications sought by the Lok Sabha MPs Dr. Umesh G. Jadhav, L.S. Tejasvi Surya, Prathap Simha and Anna-Saheb Shankar Jolle, the Finance Ministry stated that “28% GST is levied actionable claims in the form of betting and gambling supplied in online gaming.”

To the question of whether the government has levied any tax on online games and if so, the details thereof; the ministry replied that “Section 115BBJ of the Income Tax Act provides that where total income of an assessee includes any income by way of winnings from online game, the income-tax payable shall be the aggregate of:

1. The amount of income tax calculated on net winnings from such games during the Previous year computed in the prescribed manner at the rate of thirty per cent; and
2. The amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the net winnings referred to above.”

Further stated that “Net winning is calculated after aggregating all winning (including losses) during the year. Section 115BBJ of the Act applies from first April 2024 and is accordingly applicable for the assessment year 2024-25 and subsequent years.”

Additionally, Section 194BA of the Income Tax Act, which entails the deduction of tax at source (TDS) at a rate of 30% on net winnings from online games. This deduction occurs during the withdrawal process and at the end of the financial year.

The Ministry clarified that in the past, online games were taxed under section 115BB of the Income Tax Act, and tax deduction was required under section 194B of the Act. However, due to a substantial increase in the number of game users and the diversity of games being played during the year, it became necessary to introduce specific provisions concerning Tax Deduction at Source (TDS) and the taxability of online games.

This decision was prompted by the unique nature of online games, which are easily accessible through the Internet and computer resources, offering a wide range of playing options and payment methods. As a result, separate provisions were introduced to address the taxation and TDS requirements for online gaming.

Moreover, the ministry emphasized that concerning the Goods and Services Tax (GST), the rates and exemptions are determined based on the recommendations of the GST Council. This council is a constitutional body consisting of members from both the Union Government and State/UT Governments. To address specific issues related to casinos, race courses, and online gaming, the GST Council established a Group of Ministers, which submitted its findings to the GST Council.

After thorough discussions, the GST Council, in its 50th meeting held on July 11th, 2023, clarified that actionable claims provided in online gaming should be subject to a GST rate of 28% of their face value.

Concerning the projected annual revenue from the taxation of online games, the Ministry stated that there are no specific estimates available for direct tax at this time. Nevertheless, in the current scenario, online gaming companies are subject to a GST rate of 18% on platform fees, typically ranging from 5% to 20% of the full face value. It is expected that the collection of GST at 28% on the full face value will lead to an increase in revenue compared to the current levels.

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