All you need to know about Tax on Online Gaming under GST Return

Introduction

The 48th GST Council meeting was scheduled on 17th December,2022 and as per the GoM report, GST on online gaming and casinos was not covered in the meeting held. This council is in charge of putting the final touches on its proposals regarding the application of GST to online gaming and concluding the discussion over “games of skill or chance. The thorough information in this article will help you know more about the tax on Online gaming and casinos under GST Return.

What is GST on Online Gaming?

Online games are currently classified under the GST based on skill versus chance. A game of skill is one in which the result is determined by the player’s skill, practice, and experience rather than just by chance. Rummy and fantasy sports games like Dream 11 are a couple of examples. It is important to know the difference since skill games are eligible for a reduced tax rate.

Whereas betting, gambling, and horse racing are all treated similarly to games of chance. They are consequently charged a higher GST rate under Rule 31A of the CGST Rules, 2018. There can occasionally be little difference between ability and chance. The tax authorities combined all of the games, including rummy, into games of chance, which paved the way to a higher GST tax rate. Online casino income are also subject to the same 28% GST rate as games of chance.

GST Rates for Casinos and Online Gaming

The following GST rates are applied to earnings from online casinos and gaming:

• Under HSN 998439, an 18% GST is only payable on the platform’s commission/service fee or on gross gaming revenue for games of skill such as esports, puzzles, and some card games (total stake value – distributed earning).
• For a game of chance, including gambling at casinos, a 28% GST is applied under HSN 999692 on the total bet value.

How is the GST on Online Gaming and Casinos Calculated?

A gaming website has two different ways of keeping its income.

• A platform fee or admission fee (often between 10-20%)  for playing the game.
• A percentage of the pot money is set aside for awarding prizes.

A game of skill will only charge an 18% platform/rake fee. As an example, suppose 10 rummy players would like to bet Rs. 500 and the platform charges a fee of 10%. Then,

Platform Fee = 100 Rs. * 10% * 10

Platform Fee = 100 Rupees

GST chargeable : 100*18%

GST chargeable = 18 Rupees

However, the total gross value of games of chance will be subject to a 28% GST rate. As a result, in the previous example, the taxable income rises to Rs. 28 whether the game is treated as a game of chance or when the profits are treated similarly to a casino bet.

GST chargeable: 100 * 28%

GST chargeable = 28 Rupees

Input Tax Credit Claims for Casinos and Online Gaming Service Providers

A registered tax person may claim input tax credit (ITC) on products and services used to develop the business under Section 16(1) of the CGST Act. However, the CGST Act’s Section 17(5) puts various limitations on when ITC can be claimed. Additionally, the 48th GST Council has not yet met to decide whether casinos and internet gaming businesses would ultimately be subject to taxation.

Conclusion

This is expected form the further GST Council Meeting that the GoM (Group of Ministers) are about to impose a 28% GST on the whole amount of consideration collected from online gambling, including the admission fee. Additionally, it is being suggested that after the initial purchase of casino chips at a 28% GST, no additional GST fees would be assessed, even on brand-new purchases.