New Tax Rules for Online Gaming

New Tax Rules for Online Gaming

This article covers “Daily Current Affairs” and the topic details “New Tax Rules for Online Gaming”. The topic “New Tax Rules for Online Gaming” has relevance in the “Indian Economy” section of the UPSC CSE exam.


For Prelims:

What are the new tax rules on online gambling? 


For Mains:

GS3: Indian Economy and Government Budgeting 


Why in the news?

During its meeting on July 11, the GST Council made the decision to impose a consistent 28 percent tax on the complete face value of online gaming, casinos, and horse-racing.


Current Rules: 

  • Currently, gaming companies pay a tax of 18 percent on platform fees for activities such as fantasy gaming platforms, which are considered games of skill.
  • For example, let’s assume the platform fee charged by the game for participating in a contest was 10% of the deposit. So, if Rs 100 was deposited, the platform earned Rs 10. With the previous 18% GST rate, the tax on the Rs 10 would be Rs 1.8. 


New Rules: 

    • The Revenue Department’s clarification that the tax rate for these categories should be 28 percent led to the decision made on Tuesday.
    • The new structure will levy a 28% GST on the entire face value of the bet or consideration paid, rather than just the platform fee.
    • This means that the GST on every Rs 100 deposited will be Rs 28, compared to the previous Rs 1.8.
    • As a result, online games of skill will now have to pay around 15.6 times more GST under the new regime.
  • The tax will be levied based on the following:
      • In the case of casinos, the tax will be applicable on the face value of the chips purchased.
      • For horse racing, the tax will be applied to the full value of the bets placed with the bookmaker or totalisator.
      • In the case of online gaming, the tax will be imposed on the full value of the bets placed.
  • Proposed changes to the GST-related laws:
    • Inclusion of online gaming and horse racing as taxable actionable claims in Schedule III. 
    • An actionable claim, as defined by the Central Goods and Services Tax Act, 2017, is considered goods for GST purposes. 
    • Until now, lottery, betting, and gambling were categorised as actionable claims, and the forthcoming amendments will extend this classification to include horse racing and online gaming.


Prospective impacts on the Industry: 

  • Increased costs for operators: The 28% GST will be a major increase from the current rate of 18%. This is likely to lead to higher costs for online gambling operators, which could be passed on to consumers in the form of higher fees or lower winnings.
  • Reduced investment in the industry: The high tax rate could make it less attractive for new operators to enter the market, and could also discourage existing operators from investing in new products and services.
  • Increased levels of illegal gambling: As the cost of legal gambling increases, some people may be tempted to turn to illegal operators who do not charge taxes. This could have a number of negative consequences, including increased crime and corruption.
  • Possibility of Job Loss due to reduced investments as the decision is likely to affect volumes and thus the viability of gaming companies.


Gaming in India: 

In India, games are generally classified into two broad categories for differentiation purposes.

Games of Chance (Gambling) Games of Skill (Gaming)
  • Games of chance encompass those games that are played randomly, primarily relying on luck. 
  • These games can be played without prior knowledge or understanding, such as dice games or number picking. 
  • Participating in such games is considered illegal in India.
  • Games of skill involve those games that require a person’s prior knowledge or experience in playing. 
  • These games necessitate skills such as analytical decision-making, logical thinking, and capability. 
  • Some games may even require initial training to increase one’s chances of winning. 
  • Most Indian states consider such games to be legal.


Online Game:  The Indian government defines an online game as “a game that is offered over the Internet and can be accessed by a user through a computer or an intermediary.”


Online Game Regulations: 

  • The Ministry of Electronics and IT (MeitY) had introduced fresh regulations aimed at safeguarding online gamers from harmful content and addiction in April 2023. 
  • To achieve this, a self-regulation model has been implemented for the online gaming sector, wherein Self-Regulatory Organizations (SROs) will assess and approve games that comply with the established rules for operation within the country. 
  • These updated rules for online gaming have been incorporated as an amendment to the IT Rules of 2021.


Goods and Services Tax (GST) Council:

  • The Goods and Services Tax (GST) Council is a constitutional body responsible for making recommendations on issues related to the implementation of the Goods and Services Tax (GST) in India. 
  • The Council was set up by the Constitution (122nd Amendment) Act, 2017, and its first meeting was held on September 22-23, 2016.
  • The GST Council is composed of the Union Finance Minister, the Minister of State for Finance, and the Chief Ministers of all the states and union territories. 
  • The Council takes decisions through a consensus-based approach.
Quorum One-half of the total number of members
Majority Three-fourths of the weighted votes of the members present and voting
States’ Weightage One-sixth of the total votes cast
Centre’s Weightage One-third of the total votes cast


Key functions of the GST Council:

  • Making recommendations on the GST rates: The GST Council is responsible for making recommendations on the GST rates for various goods and services. The Council takes into account factors such as the revenue implications of the rates, the impact on consumers and businesses, and the need for uniformity across the country.
  • Determining the exemptions and thresholds: The GST Council is also responsible for determining the exemptions and thresholds for the GST. Exemptions are items that are not subject to GST, while thresholds are the minimum turnover below which businesses are not required to register for GST.
  • Approving the GST laws: The GST Council is responsible for approving the GST laws. These laws govern the implementation of the GST, including the rules on registration, filing of returns, and payment of taxes.


Sources: Uniform 28% tax on online gaming: What the GST Council’s decision says, its implications | Explained News,The Indian Express 


Q1. With reference to Gaming Laws, consider the following statements: 

  1. The new rules on online gaming will levy a 28% GST on the platform fee rather than full face value of bets.
  2. Game of chance requires initial training to increase one’s chances of winning. 
  3. Games of skill are legal in most Indian states. 

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 3 only 

(d) 1, 2 and 3

Answer: (c) 


Q2. Consider the following statements: 

  1. Goods and Services Tax (GST) Council is a statutory body. 
  2. It is headed by the Prime Minister with Chief MInisters of each state as members. 
  3. The Council takes decisions by a majority of not less than three-fourths of the weighted votes of the members present and voting.
  4. The GST Council is responsible for approving the GST laws. 

How many of the above mentioned statements are correct ?

(a) Only one 

(b) Only two 

(c) Only three 

(d) All Four 

Answer: (b)

Q3. What are the implications of the GST Council’s decision to impose a 28% tax on online gaming and its potential impact on the industry?

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