Online gaming companies in India are facing scrutiny by tax authorities, with several major firms receiving notices demanding huge sums in unpaid taxes. As per a senior government official, the total amount being sought reaches around Rs 1 lakh crore. This development comes on the heels of a new 28% GST being levied on online games.
Notices Worth Thousands of Crores
Over the past month, companies like Dream11, Gameskraft and Delta Corp have received show cause notices from GST authorities. As per reports, Dream11 and Gameskraft have been asked to pay Rs 21,000 crore in unpaid taxes. Casino operator Delta Corp received a notice demanding Rs 6,384 crore in September, followed by another for Rs 16,800 crore in October.
The notices allege that these companies have evaded taxes by under-reporting revenue or misinterpreting GST rules. However, the gaming firms have challenged the notices, claiming the tax demands are unreasonable.
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Firms Challenge Notices
Delta Corp moved the Bombay High Court seeking relief from the tax demands. On October 23, the court prohibited authorities from taking any final action against the company without prior approval. The court will now hear Delta Corp’s petition challenging the notices.
Earlier, GamesKraft had also obtained a favorable ruling from the Karnataka High Court on a similar notice last year. However, the central government has since challenged that order in the Supreme Court.
The notices have come at a difficult time for gaming companies already struggling with the impact of the new 28% GST.
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28% GST Regime Starts
The GST Council had clarified in August that the full value of bets placed on online games would be taxed at 28% GST. Previously, only the platform fees earned by gaming companies attracted 18% GST.
The change significantly increases the tax burden on real money gaming firms. It came into effect from October 1, along with rules making registration mandatory for foreign gaming companies operating in India.
Gaming platforms have argued that the higher taxes will drive users towards unlawful offshore gambling sites. Some have already downsized operations and laid off employees. However, the government believes the move will boost revenue collection from the thriving online gaming sector.
The tax notices have further vitiated the environment, with firms alleging harassment. However, the final outcome remains uncertain, pending court verdicts on the disputed notices.
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