India may soften stance on GST demands on online real money gaming companies: Sources

Online gaming companies may get a breather as the Union government is likely to soften its stance on the retro goods and services tax (GST) demand notices, sources told CNBC-TV18 on February 7.

Sources say the government realises the existential issue that gaming companies face if they have to pay GST demands raised for the period between July 2017 to March 2023.

The government now sees merit in the argument that a company cannot pay unrealistic tax demands. It is likely to have sought legal opinion on the way out of tussle with online gaming firms, sources added.

Online gaming companies have been sent 71 show-cause notices involving the evasion of GST worth ₹1.12 lakh crore in 2022-23 and the first seven months of 2023-24, the Rajya Sabha was told last year.

"As these notices are pending adjudication, the respective GST demand is not yet determined under the provisions of CGST Act, 2017," Minister of State for Finance Pankaj Chaudhary told the Upper House of Parliament in response to a written question on December 5.

This comes against the backdrop of the government in August 2023 deciding to impose a 28% tax on online gaming companies on the total funds deposited to play online games, leading to some firms like Mobile Premier League laying off employees.

Online gaming firms are in a tussle over the payment of 28% GST instead of 18% for the period up to October 1, 2023. While the companies argue that the 28% tax is applicable only starting October 1, 2023, the government believes that the October 1 revision only provided clarity to a law that was already in force. The government's stance is that the demand for tax dues is not retrospective.

Meanwhile, the matter related to GST demand on online companies is being heard in the Supreme Court. Separately, the government has challenged Karnataka High Court order quashing ₹21,000 crore GST demand on Gameskraft in the top court.