India is planning to tax winners in online gaming

More than 20,000 taxpayers have filed updated returns for 2020-21 and 2021-22
India is planning to tax winners in online gaming
Photo: Shailesh Andrade (Reuters)
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The Indian government is looking to tax winnings of online games as the sector grows in popularity.

Direct tax officials are scrutinising the data for up to 58,000 crore rupees ($7.2 billion) won over the past three years on an online gaming platform, The Indian Express newspaper reported today (Sept. 5).

Authorities have urged taxpayers to file taxes on such undeclared winnings for the past two assessment years, 2019-20 and 2020-21, the report said.

“Some may have earned more and some less...They are usually in a ledger account and they merge win and loss, it (data) is humongous,” Nitin Gupta, chairman of the Central Board of Direct Taxes, told The Indian Express.

More than 20,000 taxpayers have filed updated returns for both 2020-21 and 2021-22 until Sept. 02, with undeclared tax payments valued at over Rs50 crore.

A 28% tax may hamper India’s online gaming sector

In May, India’s finance ministry proposed 28% GST on all earnings from online games, regardless of whether the game is based on skill or chance.

The GST council will now review this during its meeting this month.

“...levying 28% GST on this [online gaming] sector may impact the growth and future investment in this niche field,” Pratik Jain, partner at PriceWaterhouse & Co, told CNBCTV-18 in July.

“The GST council may want to distinguish between the game of chance and a game of skill. While the game of chance may warrant a higher levy, GST on the game of skills should be ideally retained at 18%.”

The industry makes a significant contribution to India’s GST revenues—more than Rs2,200 crores—a study by EY and Assocham showed.

In the financial year 2020-21, the industry was worth Rs13,600 crore. It is likely to reach Rs29,000 crore by 2025, according to a KPMG report.

The proposed taxation of 28%, along with 30% income tax on winnings, takes the total tax rate on online gaming between 45-50%, industry experts said.

This could spell “game over” for the fledgeling industry.