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The Finance Ministry is considering classifying online gaming into categories of skill and chance, and levying a differential rate of GST, an official said.

Online games where winning is dependent on a certain outcome or is in the nature of betting or gambling would attract 28% Goods and Services Tax (GST), while those which involve some amount of skill could be taxed at a lower 18%.

A final decision on the taxation of online gaming would be taken by the GST Council in its next meeting, which is likely in May or June.

“All online games are not games of chance and are not in the nature of betting or gambling. The Finance Ministry will be presenting its view before the council,” the official told reporters here.

The task would be to differentiate between what should be a game of skill and what can be called a game of chance.

Currently, online gaming attracts 18% GST. The tax is levied on gross gaming revenue, which is the fees charged by online gaming portals.

A Group of Ministers meeting, chaired by Meghalaya Chief Minister Conrad Sangma, in December last year submitted a report on GST on online gaming to Finance Minister Nirmala Sitharaman.

The GoM had agreed on a 28% GST on online gaming. However, in the absence of consensus on whether the tax should be levied on only the fees charged by the portal or the entire consideration, including the bet amount, received from participants, the GoM had decided to refer all suggestions to the GST Council for a final decision.

Charging 28% GST on the entire amount, which a player deposits for a game for both categories of online game, would reduce the prize money left for distribution and drive away players from legitimate tax-deducting portals. This may also encourage online gamers towards unlawful portals that do not deduct tax, sector experts had said.

Online gaming witnessed a spurt during the COVID-19 lockdown, with the number of users in India rising substantially. As per a KPMG report, the online gaming sector would grow to Rs 29,000 crore by 2024-25, from Rs 13,600 crore in 2021.

The vexed issue of levying Goods and Services Tax (GST) on online games was hanging on fire for nearly two years now with many states pitching for a lower tax rate on those online games which require a skill. They are of the opinion that games of skill should not be treated on par with games of chance.

The absence of a clear definition often leads to tax notices being sent to online game portals and subsequent litigations.

The Group of Ministers in its earlier report submitted to the Council in June 2022, suggested a 28% GST on the full value of the consideration, including the contest entry fee, paid by the player, without making a distinction, such as games of skill or chance. However, the Council had asked the GoM to reconsider its report.