A number of online gaming companies have been asked to provide comprehensive information about cashbacks offered between October 1, 2023, and June 15, 2024, by the Directorate General of GST Intelligence (DGGI). The DGGI has discovered that these businesses have been reimbursed for taxed funds that they have provided as cashback in several promotional accounts.
Detailed Investigation
Since the 28% goods and services tax (GST) went into effect on October 1, 2023, the DGGI has conducted a comprehensive examination of the payback policies of online gaming enterprises. Businesses under investigation include Adda52.com’s owner, Delta Corp. The examination focuses on cashbacks that users received inside the allotted time.
The directorate reportedly found that several online gambling companies were paying players back taxes as cashback through their promotional accounts. Following the implementation of the 28% GST on online gambling, these reimbursements were given. Since cashbacks are exempt from GST, this technique was recognized as a way to dodge the tax.
Cashback Mechanism
Typically, an online gaming player has three types of accounts: a deposit wallet, a payment wallet, and a promo wallet. The companies in question were found to be transferring taxed money as cashback into the promotional wallets of players, thus avoiding the 28% GST. Investigations revealed that real money gaming companies were offering cashback to players in their promo accounts, prompting the issuance of summons,” a source reported.
Broader Probes and Tax Notices
Multiple online gaming companies are currently under investigation for these practices. This fresh round of summons is separate from the previous tax demand notices issued to several companies.
The GST Council declared in 2023 that bets made in online real-money games will be subject to a 28% GST on their entire face value. In August 2023, the government passed the Integrated Goods and Services Tax (Amendment) Bill, 2023, as well as the Central Goods and Services Tax (Amendment) Bill, 2023, despite strong resistance. October 2023 marked the implementation of these mandates.
Following the new tax regime, authorities issued tax notices to several online gaming startups, including Dream11, Gameskraft, and Delta Corp, totaling INR 1.12 Lakh Crore. Many gaming companies have since contested these mandates in court and have urged the government to reconsider the new tax policy.
Impact on the Industry
The online gambling business has been significantly impacted by the new 28% GST levy. A report released by EY and the US-India Strategic Partnership Forum (USISPF) claims that since the new tax law went into effect, more than 50% of Indian online gaming enterprises have seen a decline in income or stagnation.
The industry is still struggling with a high tax burden because the GST Council did not put the revision of the 28% tax regime on its agenda at its most recent meeting, despite the persisting difficulties.
The continued difficulties that the Indian online gaming business faces in light of the new 28% GST regime are brought to light by the DGGI’s inquiry into payback practices. Amidst the government’s scrutiny of corporations for their cashback practices, the industry persists in requesting relief and reexamination. Online gaming’s future in India is still up in the air while interested parties wait for more tax policy improvements.
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