The GST Council, in its 51st meeting on August 2, announced that the tax rate on online real money gaming will remain at 28% on full face value and it will be valued on initial deposits. Earlier, the online gaming companies were paying GST at 18% on gross gaming revenue (GGR).

What this now means is that the players will have to pay 28% GST on every new deposit that they make in their game wallets/accounts to play online real money games. For example, a player who deposits Rs 100 will only get Rs 78.13 as the remaining Rs 21.87 (28% of Rs 78.13) will be deducted as GST.

Interestingly, there is a tendency among some gamers to withdraw their winnings instead of keeping them in their wallets/accounts. This will prove to be detrimental for them under the new GST regime as every time they will withdraw and deposit, the amount will be taxed again.

Former founder of Adda52, Mohit Agarwal, explained the scenarios in a Linkedin post a couple of days before the GST Council’s meeting on Wednesday. Apart from the tax computation Agarwal also mentioned that online gaming companies, on average, earn around Rs 65 as commission/platform fee/GGR on a deposit of Rs 100. But it is to be noted that the figure of Rs 65 as commission is actually the highest that a company earns and the industry average is between Rs 40 and Rs 65.

Now let us look at how the tax is computed under the soon-to-be-abolished method, 18% on GGR. If commission earned is Rs 65 the GST will come to Rs 9.9 (18% of Rs 55).

But with the new GST rate and valuation method, companies will now have to pay an extra Rs 11.97 as tax (Rs 21.87 – Rs 9.9).

The bottomline of gaming companies to be affected by about 30 to 40%: Mohit Agarwal

Overall, Agarwal predicts that the real money gaming industry will not be dead as the deposits will go down in the short-term only. But he believes that the Centre will not be able to earn more tax under the new rules.

“Casual players anyway come to these platforms for entertainment. Their money will get depleted much faster because of the new tax. Companies will have to figure out ways to make their money last longer. And the players who take regular winnings out from the platform will bear the brunt of this – because there is in general lesser money in the system. These ‘winning players’ may shift to underground platforms that are outside the ambit of Indian laws,” he warned.

Agarwal feels that the bottomline of online gaming companies will be impacted by 30%-40%. The investors are also likely to avoid the industry for a year or so, he added. But when tax clarity comes, they will return.

Fortunately for the industry, the GST Council did not levy the tax on each and every contest entry amount which, according to all stakeholders, would have destroyed it.

The new GST regime for online gaming is being targeted to come into effect from October 1, 2023. A review of the situation will take place six months from the date of implementation, providing some hope for the industry to put forward their concerns in the meantime.