100 online gaming apps on DGGI radar for ₹1 lakh-crore tax evasion

Over 100 online gaming applications in India are being investigated by the Directorate General of Goods and Services Tax Intelligence for alleged tax evasion of around ₹1 lakh crore ($14 billion). Notices have been issued to several platforms, including Dream11 and Gameskraft, which have challenged the notices in court. The investigation began in 2017-2018 after the introduction of the Goods and Services Tax. The platforms are accused of paying taxes only on the platform fees they charge users, rather than on the entire amount bet on their platforms.

More than 100 online gaming applications operating in India are under the scanner of the Directorate General of Goods and Services Tax Intelligence (DGGI) for alleged tax evasion to the tune of around ₹1 lakh crore. Notices have been issued to many of these platforms and two of them - Dream11, the only unicorn among the fantasy sports apps and Gameskraft - have challenged the notices in courts.

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An enquiry against these platforms began in 2017-2018 after the change in the tax regime and introduction of GST. Earlier, the activity performed by these apps were categorised as ITeS (information technology enabled services) and they had to pay lower taxes while in the current tax regime they come under the gambling/betting category which attracts a GST at 28%.

“The major contention is that they pay the taxes only on the platform fee that they charge their users. However, the tax needs to be calculated on the entire pooled amount that is being bet on these platforms,” explained a source aware of the matter. The apps have now been asked to pay the taxes pending for the last few years, along with the interest and penalties.

Dream11 has been issued two show cause notices for alleged tax evasion amounting to ₹28,000 crore, the highest indirect tax demand notice till date. The notices were served in September – one each by the state and Central GST departments.

The company has moved the Bombay high court questioning the notices and the retrospective application of the tax regime. It has contended in its plea that the games on its platform call for a certain skill and knowledge of the sport and therefore cannot be categorised in the betting category for taxation purposes.

“As per the notices, the activity on the platform is betting. It has also been categorised as such in the GST regime. So, if the company, or the industry, wants this categorisation to change, it still owes the government the tax under the current regime until the changes are accepted by the GST council and come into effect,” the source pointed out.

Gameskraft had approached the Karnataka high court which quashed the tax evasion notices in May. After that the Central GST department moved the Supreme Court which stayed the high court order. The hearing is likely to take place this week.

“The fate of the taxation on the online gaming industry would depend largely on the Supreme Court’s decision in this case. The industries’ plea that this may amount to retrospective taxation may not sustain as the show cause notices were issued with legal provisions in effect from July 2017 when GST was implemented,” the source added.

Other major platforms on the DGGI radar include Mobile Premier League, Delta Gaming, and Playgames24x7.