GST on Gaming Cashbacks and Bonuses: Explained Simply
With GST on gaming cashbacks and bonuses in the spotlight, several gaming companies have received tax notices for not paying GST on promotional incentives like cashback, welcome bonuses, and referral credits. The GST authorities argue that these are part of “consideration” under Section 15 of the CGST Act, 2017.
But is that legally tenable? Let’s break it down.
Why Are Gaming Companies Receiving GST Notices?
The GST intelligence wing and local field formations have raised ₹100+ crore tax demands on top Indian gaming startups for FY 2019–2023.
Their allegation:
- Cashbacks and bonuses given to players are part of the gross value of supply.
- Even if no actual money is exchanged, it amounts to “other valuable consideration” under GST.
- Hence, GST should be paid on the full value, including bonuses.
These notices are not limited to real-money gaming. Even platforms offering fantasy leagues, e-sports, and poker are under the tax radar.
Legal View: Is GST on Cashbacks Valid?
Let’s refer to key provisions:
- Section 15 of CGST Act: Value of supply includes all payments made “by the recipient or by any other person on behalf of the recipient” — whether in money or otherwise.
- Explanation to Section 15: Cashback could fall under indirect consideration if it influences the price payable.
- Rule 31A(3) (for betting, gambling, and lottery): GST is charged on the full value of bets placed, without any deduction for bonuses.
However, the application of Rule 31A(3) to online games of skill is disputed — and currently sub judice before the Supreme Court in the Gameskraft case.
Key GST Notices Focus On
- Cashbacks funded by the platform
- Bonus amounts automatically added to wallet
- Referral and loyalty credits used for gameplay
- Welcome bonuses treated as ‘discounts’ by company but not pre-agreed
If a discount is not part of the contract or invoice, it’s not deductible from taxable value under GST law.
Expert Insight: How Should Gaming Platforms Prepare?
According to indirect tax experts:
“If the bonus directly allows a player to participate in a game, it acts like consideration. The tax department is applying a substance over form principle.”
Here’s what gaming platforms should do:
- Revisit T&Cs of promotions and cashback structures
- Ensure disclosures on invoices about discounts, if applicable
- Maintain audit trail showing non-monetary incentives aren’t real consideration
- Prepare for possible show cause notices (SCNs) under Section 74 of CGST
How Is This Different from Traditional Discounts?
| Feature | GST-Taxable? | Reason |
|---|---|---|
| Pre-invoice discount | No | Allowed under Section 15(3)(a) |
| Post-supply discount | Yes | Allowed only if tied to invoice + terms |
| Cashback in wallet | Yes (per GST) | Treated as consideration (if used to play) |
| Free coins/credits | Yes (argued) | If redeemable to play real-money games |
Impact on GST Compliance for Gaming Startups
- Risk of tax demand and 18% GST on full bonus value
- Interest + penalty under Section 50 and 74
- Scrutiny of past returns and GSTR-9C reconciliations
Several companies that took a “skill game = no betting” approach may now need to reclassify and pay under protest until the SC decision in Gameskraft.
One Big Legal Twist: Supreme Court Verdict Pending
The entire controversy hinges on one crucial question:
Is a game involving stakes but requiring skill exempt from Rule 31A?
The Karnataka High Court quashed the ₹21,000 crore demand on Gameskraft, but the Centre appealed in the SC. A final verdict is expected this year, which will define whether:
- Bonuses in games of skill need GST
- Rule 31A applies only to gambling/betting
Until then, CBIC is proceeding with provisional assessments and tax demands.
FAQs: GST on Gaming Incentives
Q1. Is GST payable on bonuses not withdrawn by the player?
Yes, if the bonus is used to play games, it is considered as consideration.
Q2. Can gaming companies treat bonus as discount?
Only if it meets Section 15(3) conditions — in writing and part of invoice.
Q3. What if cashback is funded by a third party?
Still taxable if it enables gameplay — it counts as consideration by another person.
Final Thoughts: Watch the SC Ruling and Be Compliant
Gaming companies must act now. Until the Supreme Court clarifies the GST applicability, businesses should:
- Review their GST valuation policies
- Disclose such schemes clearly in the books
- Engage legal counsel for representation
Need help with GST audit or show cause notices?
Efiletax offers expert support for gaming companies and startups. From GST returns to legal drafting, we’ve got your back.
Stay compliant. Stay ahead.
Summary
Several gaming firms are facing GST notices for not paying tax on cashbacks, bonuses, and referral credits. Authorities argue these are part of consideration under GST law. Here’s how companies can prepare and what the Supreme Court’s verdict in the Gameskraft case could mean.