GST Intelligence Slaps Record ₹21,000 Crores Show Cause Notice on Gameskraft; Major Crackdown on Tax Evasion in Online Gaming

Update (September 27): The Karnataka High Court has set October 11 as the date for the next hearing in the Directorate General of GST Intelligence (DGGI) vs. Gameskraft matter. The unicorn gaming startup had filed a plea, on September 26, against the show-case notice issued by the DGGI despite an earlier stay order issued by the court on the intimation notice.*

In a move that signals a major crackdown on online gaming operators in India, the Directorate General of GST Intelligence (DGGI) has begun issuing notices to all such companies in the country. On the heels of this crackdown, the DGGI has issued the biggest show cause notice in the history of indirect taxation to the Bengaluru-based online gaming company, Gameskraft Technology Private Ltd (GTPL).

The company has been accused of not paying GST (Goods and Services Tax) to the tune of ₹21,000 Crores, and the show cause notice is for the period between 2017 to June 30, 2022.

Gameskraft Technology was accused of promoting online betting through card, casual, and fantasy games like Rummy Culture, Gamezy, Rummy Time, etc. DGGI has slapped a 28% tax on betting amounts of nearly ₹77,000 Crores.

Official sources have said that the tax authorities believe that online gaming companies in India have allegedly conducted massive tax evasion in the past few years.

“The Bengaluru wing of the DGGI has issued show cause notice to online gaming company GamesKraft Technology Private Ltd for an amount of ₹21,000 Crores,” the source said.

According to a DGGI report, Gameskarft engaged in betting by allowing its users to place real money bets on the outcome of online games. The DGGI said its forensic examination also revealed the gaming firm failed to issue invoices to customers and submitted false or overdue invoices in other instances. The law enforcement agency added users have no way of withdrawing money once they top up their Gameskraft wallet.

A Gameskraft spokesperson said, “Games of skill are a constitutionally protected activity as per the Supreme Court and various high courts. Rummy is one such game declared to be a skill game like horse racing, bridge, and fantasy games. Therefore, the notice is a departure from the well-established law of the land. As a responsible startup with unicorn status in the online skill gaming sector, we have discharged our GST and income tax liabilities as per standard industry practice, which is now over a decade old. We are confident that we will be able to respond to this notice to the full satisfaction of the authorities since they have sought to apply 28% tax applicable to games of chance and lottery instead of the 18% applicable to online platforms of games of skill.”

The official sources added that the Karnataka High Court has stayed the demand notice, and proceedings are underway at the court.

Interestingly, the DGGI has informed the High Court that it is carrying out similar proceedings against India’s entire online gaming industry.

“The department is expecting to recover nearly ₹2.5 Lakh Crores in taxes from the online gaming companies,” the source added.

Recently, the Supreme Court also issued notices to skill-based gaming companies and agreed to hear a plea by the Karnataka government challenging the High Court judgment, which struck down provisions of law prohibiting betting in online gaming.

The GST Council, which is expected to hold its 48th meeting in October, is deliberating the parameters of taxing online gaming. The critical question is whether to tax the entire bet at face value or the net amount after reducing the prize money.

*Article updated on 28.09.2022 at 2 PM