Online Gaming Industry Woes; How DGGI’s Rs 55,000-Crore Tax Demand Will Be A Game Changer For India’s Online Gaming Industry

The Directorate General of GST Intelligence (DGGI) has issued around a dozen pre-show cause notices to various online real money gaming (RMG) companies, demanding approximately Rs 55,000 crore in goods and services tax (GST) payments.

Among these notices, fantasy sports platform Dream11 received the largest indirect tax demand of over Rs 25,000 crore, marking a significant development in the taxation landscape for such companies.

As the DGGI plans to issue more notices in the coming weeks, industry insiders estimate that the total GST demand from RMG companies could reach up to Rs 1 lakh crore.

These pre-show cause notices are a formal intimation of the assessed tax payable, conveyed through the DRC-01 A form, which precedes the issuance of a show cause notice in the context of GST.

Companies served with these pre-show cause notices include Play Games24x7 and its affiliated entities, along with Head Digital Works. However, these sources that revealed the same preferred to remain anonymous.

The DGGI’s Mumbai unit alone has issued approximately seven pre-show cause notices between Friday and Monday, prompting these companies to provide explanations as to why a GST demand should not be imposed. Additional pre-show cause notices are expected to be issued by units in Delhi, Hyderabad, and Bengaluru in the near future.

Companies have a five to seven-day window to respond to these notices; after evaluating their responses, show-cause notices with specific GST demands will be issued.

Online Gaming Companies Not Taking It Lightly
In response to the pre-show cause notice, Dream11 has reportedly taken legal action by approaching the Bombay High Court to challenge the demand.

The issuance of these notices followed recent changes in GST rates for real money games, which raised the tax rate to 28% on the total bets placed at the entry level of each gaming session on RMG platforms.

One insider disclosed, “Dream11 has been issued a pre-show cause notice for over Rs 25,000 crore, while a similar notice demanding GST dues of Rs 20,000 crore has been sent to Play Games24x7 and its affiliated platforms, including RummyCircle and My11Circle. Additionally, Head Digital Works received a pre-show cause notice raising a demand of over Rs 5,000 crore.”

Previously, the largest such GST demand amounted to Rs 21,000 crore, sent to Gameskraft, which has challenged the levy in the Supreme Court.

However, the apex court temporarily stayed a high court order that had invalidated the GST demand. A further hearing on the matter is anticipated by the end of the month, and on September 16, Gameskraft ceased operations of its superapp Gamezy.

The Mumbai DGGI has been conducting investigations into RMG apps for over a year and has issued notices during the course of its inquiry.

Companies have previously contested the GST levied on them before tax authorities. However, these recent notices have been issued following a GST notification that fixed the rate at 28% of the full face value of bets placed on online games.

If show cause notices are issued and companies disagree with the demands, they can appeal before the adjudicating authority.

On September 6, the Supreme Court temporarily stayed a Karnataka High Court judgment related to the Rs 21,000 crore GST demand against Gameskraft.

The court scheduled further hearings for three weeks later and instructed the parties involved to submit compilations of judgments and related documents.

Play Games24x7 offers a variety of online games that allow users to wager on outcomes, including the popular fantasy game My11Circle, a competitor of Dream11, and the online platform RummyCircle, which competes with Gameskraft’s RummyCulture.

Headquartered in Hyderabad, Head Digital Works operates several real money games, including A23 Rummy, as well as poker, pool, and fantasy sports.

The Last Bit, As the legal battle unfolds, the Indian online gaming industry faces a momentous juncture.

The DGGI’s assertive stance on GST dues marks a significant step towards regulating this rapidly growing sector.

While companies like Dream11 and Play Games24x7 have already been served pre-show cause notices, and Gameskraft’s legal contest continues, the future of RMG companies hinges on the outcome of these disputes.