► Date : Jan 26, 2023

Finance Minister Nirmala Sitharaman will present the Union Budget 2023-24 on February 1. The online gaming industry, which has seen significant growth in recent years, anticipates favourable moves in the upcoming budget, particularly in terms of taxation.

As online gaming has grown in popularity in India, the government has recognised it as a legitimate sport. The government of India integrated esports with traditional sports disciplines in December of last year. It was recognised as part of a multisport event and fell under the purview of the Ministry of Youth Affairs and Sports' Department of Sports.

The Ministry of Electronics and Information Technology (MeitY) has been designated as the ministry in charge of online gaming.

The online gaming industry has long sought correction of GST (Goods and Services Tax) anomalies imposed on it. Industry leaders have been pleading with the government to levy GST at 18% rather than 28% on online gaming. On several occasions, online gaming companies have asked the government to apply GST only to platform provider commissions rather than the total prize money.

In December 2022, the Finance Ministry clarified that actionable claims arising from betting and gambling, including those arising from online gaming, would attract GST at 28%. The ministry also said that for GST there is no differentiation between games of skill and games of chance.

According to industry voices, the online gaming sector has been witnessing an upward movement, and a higher tax rate at 28% could be detrimental to the rapid growth. The industry expects some sops on taxation and clarity regarding GST in the upcoming Budget.

It is worth noting that in October 2022 GamesKraft, a Bengaluru-based online gaming company, challenged a ₹ 21,000 crore GST notice in Karnataka High Court.

However, in recent years, several states have attempted to prohibit online games with monetary prizes. Andhra Pradesh passed the Gaming (Amendment) Bill 2020 in 2020 to prohibit online gaming. It came after several young people committed suicide in the state as a result of debt incurred while playing online games.

The Tamil Nadu government sought a similar prohibition on staked online rummy and poker by amending the Tamil Nadu Gaming Act. However, in August 2021, the Madras High Court overturned the ban, ruling that it was excessive and disproportionate.

Later that year, the Kerala High Court defined online gaming, whether with or without stakes, as a "game of skill" and overturned a state government notification prohibiting money-based online games.

In another instance, the Karnataka High Court held that amendments made to the Karnataka Police Act, 2021, to ban online gambling were "unconstitutional". The government had prohibited and criminalised skill games, including online games. However, the petitioners argued that games like rummy, poker, and chess are games of skill, and previous court orders have highlighted the distinction between games of skill and games of chance.

The government recently introduced draft online gaming rules. It proposed a self-regulatory mechanism, physical Indian address, and mandatory verification of players for online gaming companies.