At least four gaming companies have received communication from the indirect tax department for non-payment of GST on cashbacks and bonuses that the gaming platforms offer to the players.
This comes at a point the gaming industry is waging a make-or-break battle with the tax department on the retrospective collection of GST for the period 2017 to late 2023. The matter now raised by the department adds to the plight of the industry and could boil over as a fresh dispute before the court.
Bonuses, doled out to attract players, are a common practice in the trade. Several companies dip into their own funds and capital to give back the amount equivalent to the quantum of GST (collected from players on the betting amount) as bonus. The bonus received by the players is non-withdrawable and must be used for gaming.
However, according to the department’s interpretation, any bonus or cashback credited to the user’s wallet – even if not directly paid by the user – is considered as “amount paid on behalf of the player” and is therefore taxable. Since these credits, including sign-up bonuses and other promotional credits, can be used for gameplay, they are now included in the taxable value.
Alerting all gaming companies in a closed social media group, a senior official of a platform offering the board game ludo said that his company has received summons from the GST department.
“This has serious implications. Our business operations have been severely impacted, and we have been pressured to make voluntary payments to avoid further action. After extensive research and consultation, we strongly believe this interpretation is flawed and harmful to the industry. We are preparing to challenge this matter in the Supreme Court next week… I wanted to share an important update that may affect us all in the online gaming industry,” said the person.
The tax office has invoked Rule 31B, a seemingly wide regulation, of the Central GST Rules to back its demand of 28% GST on the total value of such bonuses or cashbacks disbursed to users since October 2023 when the rule came into effect.
However, according to a legal expert, “The department’s stand prima facie appears frivolous and untenable as discount can never be part of the consideration for GST.” Some of the companies grappling with notices or summons from the GST office have broached the idea of a “collective legal front” before the apex court as the stand to tax bonus amounts could soon extend to all gaming platforms.
