Who pays GST on bonuses that cover your GST on online gaming bets?

India’s online gaming industry is facing a fresh tax quandary as authorities move to levy Goods and Services Tax (GST) on promotional bonuses that are specifically designed to cover the GST paid by users on their bets.

These bonuses, widely used across real-money gaming platforms to attract and retain users, typically match the 28 per cent GST paid by players and are credited as non-withdrawable in-game credits. While players may see them as free rewards, the tax department now argues that these incentives constitute a “consideration” for services, and should be taxed accordingly.

According to
The Economic Times, at least four gaming firms have received notices from the indirect tax department alleging non-payment of GST on such bonuses. The authorities claim that even if users do not directly pay for these credits, the platforms are effectively doing so on their behalf, making the amount taxable under GST rules.

“The bonuses are usable for gameplay and are therefore part of the overall transaction value,” a senior official told the publication. The government is relying on Rule 31B of the Central GST Rules, introduced in October 2023, to justify applying the 28 per cent GST rate on the full value of these credits.

Gaming firms argue that the interpretation is flawed. One industry executive said via a closed forum that their company had been issued a summons and urged to make voluntary payments. “Our business operations have been severely impacted, and we are preparing to challenge this in the Supreme Court next week,” the person said.

The controversy only serves to add another layer to the legal battles on the issue that are already under way, with the sector contesting retrospective tax claims from 2017 to 2023. Now, the key question for regulators and the courts is whether GST applies even when the player isn’t the one footing the bill.