Gaming companies get GST notifications in spite of the FM’s statement

The authorities’ failure to stop mailing show-cause letters to online gambling businesses comes despite Finance Minister Nirmala Sitharaman’s statement in the Lok Sabha that the 28% GST on entry-level wagers in online gaming applies prospectively, commencing October 1, 2023.

On these enterprises, officials have already given GST notifications totaling more than Rs 1 lakh crore. Experts state that the letters previously submitted to online gaming enterprises were not sent under the present regulations, and that the new restrictions contained in the GST rules take effect on October 1.

Shashi Mathews, Partner, INDUSLAW, said, “So, the minister’s clarification in parliament on Tuesday does not affect the fate of those notices.” Sitharaman, according to Mathews, has only detailed the most recent changes. The FM makes it clear that taxing at the point of entry, when a user deposits, has always been the government’s intention. This includes the first deposit as well as any subsequently made deposits.

According to Mathews, “the intent was never to charge GST on winnings.” Legal challenges were prompted by notifications of over Rs 1.12 lakh crore that GST field inspectors sent to online gambling businesses in September, alleging tax fraud. In the Rajya Sabha, Minister of State for Finance Pankaj Chaudhary said that 71 show cause letters were sent to online gambling enterprises in the fiscal years 2022–2023 and 2023–2024 (up to October 2023), awaiting decision. The notifications totaled Rs 1,12,332 crore in GST.

The FM has made it clear that the exclusion of winning sums that are re-used to play would not be subject to GST after taxing the first amount, according to Ankur Gupta, practice leader, of indirect tax at SW India.