Fitment Committee likely to propose to GST Council an amendment to relieve online gaming industry from retrospective tax demands

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The union Finance Ministry has proposed an amendment to the Central Goods and Services Tax (CGST) Act, 2017. This proposal, which introduces a new Section 11A, aims to enable the central government to refrain from recovering GST that was not levied or was under-levied due to general practice.

As reported by Economic Times, this amendment is on the agenda for the upcoming GST Council meeting scheduled for June 22 in New Delhi. If accepted, it could prevent the recovery of the 28% GST on e-gaming, casinos, and horse racing, which was instituted last year. Industry stakeholders have previously expressed concerns about the ambiguity and financial challenges caused by this high tax rate.

The proposed Section 11A seeks to regularize past practices by acknowledging instances where GST was not fully applied, thereby protecting companies from retrospective tax demands. This provision could offer much-needed stability and clarity, although it does not provide for refunds on any overpaid taxes. 

According to the proposal, “no refund of GST or Compensation Cess may be allowed on account of any notification issued in this regard,” limiting financial relief to a halt on further recoveries rather than reimbursements.

The GST Council’s decision will also address demand notices totaling around Rs. 1.5 lakh crore issued to approximately 80 online gaming companies in India. This follows the Council’s decision at its October 2023 meeting to impose a 28% GST on the initial bet amount, which has been under review and will be reconsidered in the upcoming meeting. Despite industry pushback, sources indicate the government is likely to maintain its current taxation approach, citing regulatory benefits and an increase in tax revenue since the new regime took effect.

Since October 1, 2023, GST collections from online gaming have increased by 400 per cent, reaching an average of Rs. 1,200 crore per month. This increase in revenue highlights the financial impact of the 28% GST on the sector.

Moreover, the Directorate General of Goods and Services Tax Intelligence (DGGI) has detected 6,323 cases of tax evasion in the financial year 2023-24, involving Rs 1.98 lakh crore. Online gaming companies have been affected, receiving over Rs. 1 lakh crore in tax evasion notices.

The proposed amendment, if approved, could ease the pressure on online gaming companies by legitimizing past GST practices and preventing retrospective tax claims. The industry awaits the GST Council’s decision, which could define the future of online gaming taxation in India.

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