Show-cause notices worth Rs 1 lakh cr served to online gaming firms: Govt source

While the online gaming firms feel the 28 percent tax is applicable only starting October 1, the government is of the opinion that the October 1 revision only provided clarity to a law that was already in force.

Online gaming companies have been served show-cause notices for alleged tax evasions to the tune of Rs 1 lakh crore so far this year, a senior government official has said.

"The total amount of show-cause notices sent to online gaming companies is around Rs 1 lakh crore," an official said on October 25, requesting anonymity. The official clarified that the amount only refers to the tax demand made to online gaming companies and not casino operators.

Also Read: Gaming firms facing retrospective taxation in essence, but not in law

Online gaming firms are in a tussle over the payment of 28 percent Goods and Services Tax (GST) instead of 18 percent for the period up to October 1, 2023. While the companies feel the 28 percent tax is applicable only starting October 1, the government is of the opinion that the October 1 revision only provided clarity to a law that was already in force. As such, the government's stance is that the demand for tax dues is not retrospective in nature.

The GST Council, in August 2023, amended the law to clarify that all online games involving bets, irrespective of skill or chance, will attract a GST rate of 28 percent on the full value of the bets placed, and not on the gross gaming revenue, from October 1.

Following the Council's decision, online gaming companies have been served with huge tax demands that experts say will likely kill the entire industry  altogether.

"The total income of gaming companies in 2022 was around Rs 20,000-22,000 crore, but the tax demand raised against them is to the tune of Rs 55,000 crore. If the sector's value is less than the demand raised, then there is a problem," Sudipta Bhattacharjee, a partner at Khaitan & Co., a legal firm, had told Moneycontrol earlier this month.

Bhattacharjee is representing Gameskraft in the Supreme Court on the ongoing Rs 21,000 crore GST matter and several other gaming companies in various High Courts. Further, Dream Sports, the parent company of Dream 11, has lodged a writ petition in the Bombay High Court contesting a claim said to be around Rs 25,000 crore.

Also Read: Online gaming firms should approach govt, GST Council over 28% tax, say experts

Meanwhile, Delta Corp has been been provided a temporary relief from the Bombay High Court in Goa from the show-cause notices it has received from the tax department, pushing the casino major's shares 5 percent higher at open on October 25.

On September 22, Delta Corp received a tax notice for Rs 11,140 crore, with its subsidiaries also getting notices for Rs 5,682 crore. This has exerted heavy pressure on the company's share price, which is down more than 20 percent in the last one month.