India's online gaming industry faces tax evasion allegations

About 80 online gaming companies in India, including Dream11, are facing tax notices for alleged goods and services tax (GST) evasion totaling ₹10,000-12,000 crore ($1.3-$1.6 billion), following a change in GST rates set to take effect on October 1, 2023. The Directorate General of GST Intelligence (DGGI) is issuing these notices based on fresh estimates to both domestic and international online gaming companies operating in India.

The new GST rate is set at 28% and applies to the total bet placed at the start of each gaming session. These companies are accused of not paying this rate on their gross gaming revenue, which includes betting through real-money gaming. The estimated evasion is now over ₹31,000 crore ($4.2 billion). Notices are being issued for a tax demand of ₹22,000 crore ($3 billion), with the remainder in process.

Dream11, led by Harsh Jain and the biggest player in the fantasy gaming industry in India with over 180 million users and a valuation of over $8 billion, has reportedly become the latest to challenge a show cause notice issued by tax authorities for alleged GST evasion. The startup's parent company, Dream Sports, has filed a writ petition in the Bombay High Court challenging the notice. The tax claims against Dream11 amount to ₹40,000 crore ($5.4 billion), making it the largest such claim in the history of indirect taxation in India.

Last year, Bengaluru-based Gameskraft was served with a ₹21,000 crore ($2.8 billion) show cause notice for alleged indirect tax evasion on a betting amount of ₹77,000 crore ($10.4 billion) between 2017 and June 2022. The company challenged this notice in the Karnataka High Court, which quashed the notice. However, the Supreme Court stayed the Karnataka HC's ruling earlier this month on a petition filed by the tax department. This case is now pending in the Supreme Court and is expected to set a precedent for investigations into online gaming companies.

The new GST rule clarifies that tax will be imposed on the money paid by users to online games, regardless of whether the games involve skill or chance. This has been a point of contention in the industry. The GST Council, despite dissent from a few states, imposed the highest tax rate without a vote. Parliament subsequently cleared the proposed amendment in the Central GST Act. The new rule is set to take effect on October 1, with some states expected to make changes to their laws through ordinances. A comprehensive review of the rule's impact is planned six months after implementation.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.