Indian Gaming Firms Seek Supreme Court Protection from Tax Demands

Gaming businesses in India are looking to the Supreme Court to help them out with backdated Goods and Services Tax (GST) bills that might be way more than what they make. In December at least two companies put in special requests asking the court to stop the tax office from taking action until they make a final decision.

GST Department Targets Retroactive 28% Tax on Gaming Industry, Sparking Fears of Shutdowns

The GST department wants to tax 28% of the total betting pool. This tax applies from January 2018 to September 2023, reported The Economic Times. India’s government put new GST rules for online money gaming in place in October 2023. Now, they are going after companies for taxes from before that time. This has the industry worried about staying afloat. Some in the business say many companies might close without help from the courts.

The gaming industry has until February 5, 2025. After this date, the tax department can turn their notices into demands that must be paid. If they do not send out the notices by then, these notices might not be valid anymore. However, if companies have to pay these big tax bills, many might have to close down. This would make things even harder for the gaming sector.

Legal experts say the Supreme Court will look at three main questions: can GST be charged on all the money gamers put in, can the tax be applied to past transactions, and are games like poker, rummy, and fantasy sports based on luck or skill? If these games are seen as luck-based, they would be treated as gambling. This could spell the end for India’s online gaming industry.

Gaming Companies Push Back on Full Betting Pool Tax, Urging GST on Service Fees Only

The debate also challenges the legitimacy of Rule 31A under the GST Act. Gaming companies say the tax should affect their service charges — 5% to 20% of the deposits — instead of the whole betting pool. They insist deposits cannot be seen as payments for goods or services, a position some High Court rulings have backed before. Yet, the revenue department has taken those decisions to the Supreme Court to contest them.

Meeting compliance requirements costs a lot, causing some firms to cut jobs or close shop. Big players in the industry, like Hike and MPL, have fired employees, while smaller startups such as Fantok have gone out of business.

In contrast to the roadblocks in regulation, Prime Minister Narendra Modi sees promise in the gaming world. He is calling on Indian game makers to shine on the global stage. Even so, the gaming industry’s GST payments shot up by 412% in the first half-year of the new system. This shows how keen the government is to collect taxes from this booming field. What the Supreme Court decides will shape the future of gaming companies in India.