NEW DELHI: The online gaming industry in India is currently grappling with a significant challenge as tax demands under the GST law loom large over its operations from July 2017 to September 2023. With 71 companies receiving show cause notices from the Directorate General of Goods and Services Tax Intelligence (DGGI), the total tax demands amount to Rs 1.12 lakh crore, excluding interest and penalty. These demands, issued under the extended period clause of the GST Act, could potentially escalate to over Rs 2.3 lakh crore, excluding interest, with penalties of up to 100%.

The crux of the issue lies in the classification of online gaming as betting, disregarding the settled jurisprudence of the Supreme Court and various High Courts. While the industry contends that games of skill, even when played with money, do not amount to gambling, the tax authorities have taken a different stance.

Despite the industry's engagement with the GST Council seeking clarity on taxation policies, the dispute remains unresolved for the period preceding the October 2023 amendment. The stakes are high, with the potential bankruptcy of startups and the write-off of foreign investments exceeding Rs 20,000 crore looming large.

Recent data from the Finance Ministry highlights a significant increase in revenues following the October 2023 amendment, with the industry contributing around Rs 3,500 crore in the first three months alone. However, the retrospective tax claims pose a threat to this progress.

In response to mounting pressure, the government has emphasized that the October 2023 amendments are prospective in nature, signaling a ray of hope for stakeholders. As discussions continue within the GST Council, all eyes are on the decision-makers to strike a balance that safeguards both revenue interests and the growth trajectory of the online gaming industry.

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