Show-cause notices have been sent to Indian gaming companies and high-value players for potential tax evasion

As the pandemic kept individuals inside for what seemed like an interminable amount of time, many of them turned to online gaming as a source of not just enjoyment but also significant cash over the past two years. With over 400 gaming firms and more than 420 million online players, India’s gaming market overtook China as the second-largest internet market in the world as of June 2022.

But it appears that the industry’s wild, unbridled run is coming to an end. Seven significant online gaming companies have already received show-cause notifications from India’s Income Tax authorities, according to a Thursday report by ET. Show-cause letters were also sent to about 30 high-value players who had been active on their portals for the previous 15 years, according to officials. They estimate that there may have been up to 28,000 crores in tax evasion in all of these cases combined.

The Central Board of Direct Taxes (CBDT) chairman, Nitin Gupta, stated that the organisation had the information and was ‘in the process of issuing notices to some of the players and companies.’ For the time being, the CBDT is developing regulations that will eliminate any uncertainty surrounding the taxability of the online gaming industry.

As India’s I-T department continues to crack down on tax avoidance, more attention is being paid to the online gaming industry, which has led to the issuance of the show cause notices. The GST intelligence wing recently took similar action, and this is the most recent move in the Indian government’s aggressive crackdown on potential tax fraud by domestic online gaming enterprises.

GamesKraft Technologies, a five-year-old gaming firm situated in Bengaluru, received a sizable tax notice earlier this week from the GST division that wanted 21,000 crores in taxes, interest, and penalties for failing to pay the tax between 2017 and June 30, 2022. The show cause notice issued at the time, which ended up being the largest show cause notice in indirect taxes history, stated that GamesKraft’s operations should be subject to a 28% tax rate on gross revenue since they fall under the definition of ‘betting.’