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What Are The Implications Of GST On Online Gaming

The gaming industry in India is flourishing like never before. And just like every other industry, the gaming industry too comes under the scope of taxes, particularly Goods and Service Tax (GST). And it is important to understand the implications of GST on the online gaming industry.

The major source of revenue for online gaming platforms is the in-app advertising. Many businesses are coming forward to advertise their products on the gaming platforms. Also, another source of revenue is the user subscription fees and the purchase of the application.

Online gaming involves its own components of inputs and outputs. However, for GST purposes the online gaming services fall under the Online Database and Retrieval (OIDAR) service.

Section 2(17) of Integrated Goods and Service Tax Act (IGST Act) defines OIDAR services as the services provided with the use of the internet in a highly automated manner involving minimal human intervention in the provision of service. The OIDAR definition in IGST Act also includes online gaming.

As per provisions of place of supply (POS) of services, gaming services by foreign companies to players located in India, shall be taxable under GST  Laws. If the recipient of the service is registered under the GST, the tax shall be discharged by the recipient under reverse charge. 

According to the Maharashtra Authority of Advance Ruling (AAR), online gaming service has been recorded under the additional heading ‘Other Online-contents not elsewhere classified.’ The AAR also includes online gaming in the definition of online information and data-based access or retrieval services (OIDAR services) entailed in the IGST Act. Online gaming which is an e-good is classified in the OIDAR services under GST and is taxable even in cases where the gaming cloud is located in India.

Another aspect of online gaming is the fantasy sports platforms. A major concern while ascertaining the taxation for fantasy sports is its qualification as a game of skill or gambling. Section 7 of the Central Goods and Services Tax Act under Schedule III of the CGST Act says that such activities with uncertain nature can neither be treated as a supply of services or supply of goods and would therefore be exempt from levy of GST. Additionally Schedule III states that inter alia includes ‘actionable claims, other than lottery, betting and gambling’ as activities not liable to be taxed. 

Recently, the High Court of Bombay in the case of Gurdeep Singh Sachar v. Union of India (Criminal Public Interest Litigation Stamp No. 22/2019) held that the games played on fantasy sports platforms like Dream11 are games of skill and not games of chance. In terms of the amounts to be collected by the players in their account is an ‘actionable claim.’ And so, such ‘games of skill’ have to be levied with a tax of 18% by the leagues from the participants irrespective of their winnings.

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