Indian Tax Authorities Issue Rs.1 Trillion Tax Notices to Online Gaming Companies

Business
Oct 25 2023 11:49 AM
P C Thomas

Indian Tax Authorities Issue Rs.1 Trillion Tax Notices to Online Gaming Companies

Indian tax authorities have issued substantial tax notices, amounting to a staggering 1 trillion rupees ($12.03 billion), to online gaming companies. This revelation comes from an anonymous government source on Wednesday, October 25.

Over the past few months, both central and state Goods and Services Tax authorities have rapidly dispatched a slew of notices to various companies. This trend is expected to continue in the forthcoming months.

One instance includes a state tax authority's summons, initiated based on media reports, inquiring about GST payments from a company following its merger with another entity in a different state. In another case, a company received a notice, imposing a flat 18% GST on their entire turnover, resulting in a tax demand of Rs 1,400 crore. Remarkably, this demand failed to consider the tax already paid by the company.

In the first case, officials from the revenue department argue that the state GST authority holds jurisdictional powers because the company registered in that particular state, despite the fact that its primary operations and headquarters were located in another state.

These tax notices have not been limited to a specific industry; they span various sectors, encompassing consumer durables, smartphones, insurance, banking, online gaming, and service providers. What has instilled concern within India Inc. is not only the multitude of notices but also the absence of a standardized process, inadequate coordination between central and state tax authorities, and occasional misunderstanding among certain tax officials regarding the VAT (Value-Added Tax) era. Furthermore, there are concerns related to the interpretation of these notices, primarily linked to the initial implementation phase of the GST, marked by numerous initial challenges and policy adjustments.

Following sector-specific investigations, the scope of these notices has expanded over the past few months to address issues such as "underpayment" of tax, "incorrect availment of input tax credit," and disparities between filed returns and financial records. This heightened activity occurred in anticipation of the end of the three-year limitation period on September 30 for sending show cause notices concerning the fiscal year 2017-18, which marked the inception of the GST regime. The limitation period commences after the submission of annual returns for the relevant fiscal year. Notably, the deadlines for annual return submissions were extended several times during the initial GST phase and throughout the COVID-19 pandemic, thus extending the limitation period for 2017-18 until September 30 of the current year.

These notices have also extended to subsequent fiscal years, ranging from FY19 to FY22. Dabur India, LIC, Bajaj Allianz, ICICI Prudential, Star Health and Allied Insurance, Maruti Suzuki, Akzo Nobel, Sheela Foam, and ICICI Lombard General Insurance are among the companies that have been recipients of these notices and tax demands.