India's online gaming industry set to touch $9.1 billion by 2029 amid looming tax hurdles
India's online gaming sector has seen rapid growth in the last few years and is projected to grow more than double by 2029. However, regulatory challenges—especially the imposition of retrospective tax—is expected to hit hard, and is holding back the sector and making investors cautious on taking big bets.
According to a study by Winzo Games, in conjunction with the Interactive Entertainment and Innovation Council (IEIC), the online gaming sector in India is likely to reach $9.1 billion by 2029 from $3.7 billion in 2024, clocking a compounded annual growth of 19.6 per cent. The growth will be aided by a growing user base that is expected to rise to 952 million by 2029 from 600 million in 2024. The global gaming industry is estimated to be worth $300 billion.
The online gaming industry, which is home to 1,888 gaming companies and employs 1.30 lakh people, could even reach $60 billion market size by 2034, the study predicts. However, regulatory clarity on supportive taxation and innovation policies will be critical for the sector's big leap, said executives.
A big challenge the industry is currently facing is related to how the GST (Goods and Services Tax) is levied. Gaming companies typically have been paying a GST of 18% on the platform fee for revenue earned by them. However, as per a July 2023 directive by the GST Council, both skill-based and chance-based games fell into the 28% slab, levied on the total entry amount.
Several gaming companies have been sent notices in this regard. Earlier this week, fintech platform Paytm's gaming arm First Games Technology received a show cause notice from the Directorate General of GST Intelligence (DGGI), with a proposed liability of Rs 5,712 crores, along with applicable interest and penalties from January 2018 to March 2023.
In line with the industry, First Games said it would file a writ petition challenging the notice on legal grounds, including the retrospective application of the GST amendment, dated October 1, 2023. In January this year, the Supreme Court stayed GST proceedings against many online gaming companies over such retrospective GST demand notices issued to them.
Industry executives have said the retrospective GST application—that too on their entry amount—could hit the sector hard.
"The revenue that we earn is the service commission. So, the percentage (of GST) is a policy matter. But, what should the amount, or the valuation, on which there should be GST charged is on the revenue I take?" questioned Saumya Singh Rathore, the co-founder of Winzo Games.
The gaming industry has seen a sharp slowdown in funding in the last two years, with executives pointing to this GST-related uncertainty as one reason.
The online gaming industry has received a total FDI (foreign direct investment) of $3 billion till date. However, of late, the going has been quite slow. For instance, the sector saw investments of $1.74 billion in 2021 and a further $220 million in 2022, which declined to just $2.6 million in 2023 and $15 million in 2024.
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