Budget 2025 Expectations For Online Gaming Sector: GST Reduction, Clarity In Policy, More
Despite the imposition of a significantly high rate of GST at 28%, the Indian online gaming industry raked in an impressive $3.8 billion in gross revenue.
By Vidushpat Singhania
India's online gaming industry has emerged as a significant player in the digital economy, showcasing resilience and growth despite regulatory challenges, particularly in light of the imposition of 28 per cent GST on the face value of the bets placed by users. With the Union Budget 2025 approaching, stakeholders are eagerly anticipating measures to support this burgeoning sector. The industry's expectations include tax relief, policy support, and regulatory certainty to foster innovation.
A Thriving Industry Amid Challenges
Despite the imposition of a significantly high rate of GST at 28 per cent of the overall face value of the first-time bets placed by registered users, the Indian online gaming industry raked in an impressive $3.8 billion in gross revenue. Increasing smartphone penetration, affordable internet access, increased in-app purchases, and a youthful demographic are indicated as the key factors behind such a projection. Despite this growth, the industry faces pressing challenges, particularly concerning taxation and regulatory pressures.
Key Taxation Issues
The online gaming industry’s primary concern for the upcoming financial year is the GST rate of 28 per cent on the face value of the first-time deposits made by registered users, regardless of the nature of the online game.
This was in stark contrast to the earlier distinction on the rates of taxation between skill-based games (18 per cent) vs chance-based games (28 per cent). The new tax rate applies to the value of deposits made by each registered user as opposed to the gross gaming revenue generated by gaming operators, thereby drawing criticism from industry stakeholders.
Gaming companies have long argued that GST should be levied only upon platform fees or commissions. This contention, coupled with the time (retrospective application) from when such a rate ought to be imposed has led to legal disputes.
The Supreme Court recently granted a stay pending final adjudication on the multitude of GST show-cause notices issued to gaming companies, effectively preventing tax authorities from proceeding with their GST recovery processes whilst the matter is pending before the Supreme Court.
However, the tax amount in question is substantial, totalling approximately Rs 1.12 trillion for alleged GST evasion. The hearing, scheduled for March 18, 2025, will be pivotal in shaping the regulatory landscape. Industry stakeholders are hopeful that the resolution will strike a balance between revenue generation and fostering growth.
Budget 2025: What The Online Gaming Industry Expects
Stakeholders in the online gaming industry have outlined several expectations from the Union Budget 2025 to address the challenges facing the Indian online gaming sector and thereby unlock its full potential:
- Reduction in GST Rate: The Industry is advocating for a reduction in the GST rate from 28 per cent to 18 per cent for skill-based games, aligning it with other service sectors. This move is seen as essential to mitigate financial pressures and encourage innovation.
- Policy Clarity and Support: There has to be a crystal clear policy vis-à-vis the treatment to be accorded to games of skill and games of chance, as understood by existing legal precedents read with various state-wise gambling legislations.
- Resolution of Retrospective Taxation Issues: Resolving pending tax disputes and addressing retrospective taxation concerns will provide much-needed relief to gaming companies, enabling them to focus on growth and innovation. The industry at minimum hopes at least for the waiver of penalty and interest on the online gaming companies, due to the policy ambiguity that has existed, with the rate of taxation being applied only prospectively.
- Incentives for Startups and Innovation: Startups in the gaming sector are looking forward to incentives, such as tax breaks, funding schemes, and R&D grants, to drive innovation and attract investment.
- Increasing the threshold for taxation on winnings: The income tax on net winnings from online gaming is currently set at a low threshold of Rs 10,000 per year. The Industry hopes that the same will be increased to Rs 50,000 per year.
Gaming, A Sector Poised For Growth
Despite the challenges, the online gaming industry remains optimistic about its future. The sector currently employs over 1,00,000 individuals and is expected to generate more than 2,50,000 jobs by 2025.
The online gaming industry at large has applauded and highlighted the importance of the stay on tax proceedings by the Hon’ble Supreme Court, stating that it protects both gaming companies and revenue authorities by allowing for legal clarity without procedural obstacles. This respite coupled with a balanced regulatory approach, could ensure the industry’s sustainability and contribution to India’s digital economy.
The Union Budget 2025 presents a crucial opportunity to address the pressing issues faced by the online gaming industry. A reduction in the GST rate, policy clarity, and incentives for innovation could propel the sector to new heights, solidifying India’s position as a global gaming powerhouse. With the right support, the industry could continue to attract investment, create jobs, and contribute significantly to the nation’s economy.
(The author is the Managing Partner, Krida Legal, specialising in gaming laws)
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