The real money gaming industry, already under intense scrutiny, is now facing renewed pressure from the Goods and Services Tax (GST) authorities. According to a report by The Economic Times, at least four gaming firms have been handed notices by the indirect tax department over alleged non-payment of GST on cashbacks and bonuses offered to players.
This latest move comes even as the industry is locked in a high-stakes legal battle over retrospective GST demands covering the period from 2017 to late 2023. The new set of notices, focused on promotional incentives, adds another layer of complexity for gaming firms and could spark a fresh legal confrontation, ET noted.
Bonuses and cashbacks are widely used in the sector to attract and retain users. These incentives—often funded directly by the companies—typically match the GST amount paid by users on bets and are credited as non-withdrawable game credits. However, GST authorities are now viewing such incentives as part of the “consideration” paid for gaming services.
Citing communications reviewed by the publication, ET reported that the department’s interpretation suggests that any bonus or cashback added to a user’s wallet, even if not paid out of the user’s pocket, qualifies as an “amount paid on behalf of the player” and should therefore be taxed. Since these credits are usable for gameplay, they are now being counted towards the taxable value.
One senior executive at a gaming platform told The Economic Times via a closed industry forum that their company had received a GST summons. “This has serious implications. Our business operations have been severely impacted, and we are being pressured to make voluntary payments to avoid further action. We believe the interpretation is flawed and detrimental to the sector. We are preparing to challenge this in the Supreme Court next week,” the person said.
The tax department is reportedly invoking Rule 31B of the Central GST Rules to justify the 28% tax levy on the total value of such promotional credits disbursed since October 2023, when the rule came into force.
However, legal experts quoted by ET argue that the department’s position is weak. “The department’s stand prima facie appears frivolous and untenable, as discount can never be part of the consideration for GST,” one expert said.
Facing mounting pressure, several gaming firms are now exploring the possibility of a coordinated legal response, with plans to approach the Supreme Court to contest the interpretation. Industry players worry that this latest development could lead to similar tax actions across the broader online gaming ecosystem.
