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Centre Likely To Move SC Against Karnataka HC Order Quashing GST Notice Against Gameskraft

The Central government may challenge the Karnataka High Court’s decision to dismiss a tax evasion notice worth INR 21,000 Crores issued to Gameskraft Technology, an online gaming startup based in Bengaluru. Prior to approaching the apex court, the government could discuss this matter with the GST council, as reported by CNBC Awaaz.

The Directorate General of GST Intelligence (DGGI) had issued the INR 21,000 Crores show-cause notice to Gameskraft in September of last year, alleging tax evasion on a substantial amount of INR 77,000 Crores between 2017 and June 2022.

In a recent ruling by Justice SR Krishna Kumar, the Karnataka High Court dismissed the argument that games of skill should be considered as gambling if played for monetary gain. Although the court didn’t classify skill-based games as gambling, the Central government may challenge this stance. It believes that all online games should be treated as a form of gambling and subject to a 28% GST.

The finance ministry is reportedly considering categorizing online games into two types – games of skill and chance – in order to levy different GST rates. The Finance Act of 2023 recognized the online gaming industry as distinct from gambling and betting.

The online gaming industry is still awaiting clarity on GST. Currently, a tax rate of 18% is applied to the commission collected by online gaming platforms for games that do not involve gambling or betting.
In December, a group of ministers (GoM) led by Meghalaya Chief Minister Conrad Sangma submitted an alternate report on the taxation of online gaming, horse racing, and casinos to Finance Minister Nirmala Sitharaman. The GoM report on online gaming will also be discussed at the GST Council.

According to a report by VC firm Lumikai, India’s gaming market was estimated to be worth $2.6 billion in FY22 and is projected to reach $8.6 billion by FY27. The number of gamers in India reached 507 million in FY22, growing 12% from 450 million in FY21.

With the rising popularity of online gaming, numerous gaming startups have emerged in India, including unicorns such as MPL, Dream11, Games 24 × 7, and others.