Why online gaming companies are under scanner over cashbacks

The Directorate General of GST Intelligence (DGGI) has issued new summons to several online gaming companies, including Delta Corp, which runs Adda52, seeking details about cashback offered to players since October 2023, according to sources familiar with the matter.
The DGGI's Gurgaon office is investigating the practice of reimbursing taxed money to players as cashback in separate promotional accounts, a move that came to light after the implementation of the 28% Goods and Services Tax (GST) on full entry-level betting amounts.
"Multiple companies are being probed," an unnamed official told The Economic Times, emphasising that these summons are unrelated to past tax issues. The investigation covers the period from October 2023 to June 15, 2024.
Typically, players on these platforms maintain three accounts: a deposit wallet, a payment wallet, and a promotional wallet. The DGGI has detected that companies were transferring cashback into the promotional wallets, potentially circumventing the new tax regime.
Legal experts argue that cashback should not be subject to additional GST. Abhishek Rastogi, founder of Rastogi Chambers, told ET, "When taxes are already paid on the entire consideration paid by the user, the credit from the online companies should not be subject to further GST."
This development comes as the online gaming industry grapples with the impact of the 28% GST, which came into effect on October 1, 2023. The report states that gaming companies are already facing tax demands of approximately ₹1.14 lakh crore, with appeals pending in various courts.
The GST Council was expected to review the tax on online gaming after six months, but the issue was not addressed in its last meeting. As the investigation unfolds, the industry awaits clarity on the taxation of cashbacks and potential relief from the high tax rate.