Tax Trouble in Fantasy Sports: How 28% GST is Changing the Game
The online gaming industry in India has experienced significant growth, becoming one of the largest markets globally.
This rapid expansion has prompted the government to reassess its taxation policies, particularly concerning the Goods and Services Tax (GST) applied to fantasy sports and online gaming platforms. Recent policy changes have introduced a uniform GST rate of 28% on the total value of bets placed, effective October 1, 2023.
Previous Taxation Framework
Prior to these changes, the taxation structure differentiated between games of skill and games of chance:
  • Games of Skill:These were taxed at 18% on the Gross Gaming Revenue (GGR), which is the amount retained by the platform after distributing winnings.
  • Games of Chance:These attracted a higher GST rate of 28% on the total bet value.
Revised GST Policy
The revised policy imposes a uniform GST rate of 28% on the full face value of bets, stakes, or entry fees for all online gaming formats, including fantasy sports, regardless of their classification as games of skill or chance.
Under the previous regime, if this contest was classified as a game of skill, the platform would have been taxed at 18% on the GGR. Assuming the platform's commission (GGR) was 10% of the entry fee (i.e., ₹100), the GST would have been 18% of ₹100 = ₹18. The new policy significantly increases the tax burden by applying the 28% rate to the entire entry fee.
Impact on the Industry
The implementation of the 28% GST on the total value of bets has led to a substantial increase in revenue collection. According to Finance Minister Nirmala Sitharaman, this resulted in a 412% jump in revenue, generating ₹6,909 crore within six months of implementation.
    However, this shift has also posed several challenges:
  • Increased Financial Burden:The higher tax rate on total deposits has significantly increased the financial burden on gaming companies.
  • Operational Challenges:Platforms may face reduced margins, leading to hiring freezes or operational shutdowns.
  • User Participation: The increased cost to players could result in decreased user engagement and participation.
Conclusion
The recent GST policy changes aim to increase tax revenues from the burgeoning online gaming sector. However, the uniform application of a 28% tax on total bets poses significant challenges to the industry's sustainability and growth. A balanced approach that considers both revenue generation and the industry's health is essential for fostering a thriving online gaming ecosystem in India.