The online gaming industry gained a huge boost over the past two years – as the pandemic confined people to their homes for what seemed to be an indefinite period of time, many of them turned to gaming as a source of not just entertainment, but serious income as well. India’s gaming market, as of June 2022, became the world’s second-largest internet market, playing host to over 400 gaming companies and more than 420 million online gamers, second only to China.
The free, untamed run for the industry though, seems to be coming to an end. India’s Income Tax department has now issued show cause notices to seven major online gaming companies, ET reported on Thursday. Show cause notices were also issued to around three dozen high-value players active on their portals over the past 15 years, officials said. In all these cases combined, they are looking at a possible tax evasion could of up to ₹28,000 crores (~$3.5Bn).
Nitin Gupta, chairman of the Central Board of Direct Taxes (CBDT), informed that they had the “data and are in the process of issuing notices to some of the players and companies.” For now, the CBDT is working on guidelines that will clear any ambiguity regarding the taxability of the online gaming sector
The show cause notices have been issued as India’s I-T department continues to crack down on tax evasion, something that has resulted in increased scrutiny of the online gaming sector. This is the latest development in the pursuit of the Indian authorities cracking down hard on possible tax evasion by online gaming companies that operate in the country, and comes soon after the GST intelligence wing did something similar a few days ago.
Earlier this week, Bengaluru-based five-year-old gaming company GamesKraft Technologies was served a hefty tax notice from the GST wing that demanded ₹21,000 crores in taxes, interest, and penalty for not paying the tax between 2017 and June 30, 2022. The show cause notice issued at that time, which turned out to be the biggest show cause notice issued in the history of indirect taxation, informed that GamesKraft’s business should be taxed at a rate of 28% on its gross revenue since its operations fell under the purview of “betting.”