According to media reports, the finance ministry is considering categorising online games into two types: skill games and chance games, as well as levying a variable rate of Goods and Services Tax (GST).

Games that are based on a specific outcome or are in the nature of betting or gambling would be subject to a 28 per cent GST. The reports further added, games requiring some level of ability could be taxed at a lower 18 per cent rate. Currently, an 18 per cent tax is charged on commission collected by online gaming companies for games that do not involve betting or gambling.

It was previously reported that a Group of Ministers (GoM) formed to recommend the GST rate for online gaming may propose an 18 per cent tax on gross gaming revenue (GGR). Previously, it had proposed a consistent GST rate of 28 per cent for online games.

The group, led by Meghalaya Chief Minister Conrad Sangma, agreed to levy a 28 per cent GST on betting, casinos, and horse racing. GoM was formed last year to investigate the issue of valuation of services offered by casinos, racetracks, and internet gaming, and to determine whether any changes to the legal provisions were required to adopt better methods of valuation of these services.

Additionally, the Finance Act of 2023 defined the online gaming business as a new-age industry, differentiating it from gambling and betting. The Finance Bill 2023 included two new Sections that imposed taxes on the sum won on these sites. According to the Bill, prize money received from online gaming would be taxed at 30 peer cent beginning April 1. TDS was charged on online game winnings that exceeded Rs 10,000 before March 31, 2023.

Following months of deliberation, the Ministry of Electronics and Information Technology (MeitY) announced the rules for online gaming earlier this month. However, the industry is still waiting for tax clarification.