India's tax sleuths slap $670M GST show-cause notice on First Games
Paytm’s parent company, One 97 Communications Ltd, has disclosed that its subsidiary First Games Technology Private Limited has received a (SCN) from the Directorate General of GST Intelligence (DGGI). The notice demands a Goods and Services Tax (GST) of 28 percent on the total entry amount collected from users, a significant increase from the 18 percent tax the company has been paying on its platform fee or revenue.
The SCN cites a potential tax liability of ₹5,712 crore ($678 million), in addition to applicable interest and penalties. This development is part of a wider regulatory issue currently affecting the entire online gaming industry in India.
Industry-wide GST dispute
According to One 97 Communications, the DGGI’s position is based on the interpretation that 28 percent GST should be applied to the full entry amount paid by users for participating in games, rather than only on the platform fees collected by gaming operators. This issue has impacted several gaming companies, many of which have already sought legal remedies.
The central dispute arises from Rule 31A of the CGST Rules. Authorities interpret the rule as applying a 28 percent tax on the face value of each bet. However, the gaming industry maintains that the rule is applicable only to gambling and betting, and not to skill-based games such as rummy, poker, or fantasy sports.
Legal response and SC hearing
First Games plans to challenge the SCN by filing a writ petition, contesting the retrospective application of the GST amendment that took effect on 1 October 2023. The company will also challenge the interpretation of GST provisions prior to the amendment.
The Supreme Court of India is scheduled to hear the matter from 5–9 May. This is being described as one of the country’s largest tax battles, with an estimated financial impact of ₹2.5 lakh crore for the online gaming industry. Several companies have already been granted interim relief by the apex court, including stays on further proceedings related to similar tax notices.
Financial exposure for parent company
One 97 Communications stated in its exchange filing that First Games is treated as a joint venture for group consolidation purposes. As such, the GST notice does not affect the parent company’s ongoing operations or financial performance.
The filing clarifies that the parent company’s exposure to First Games stands at approximately ₹225 crore, primarily through shareholder loans including interest as of 31 December 2024. Additionally, First Games’ revenues are not consolidated with the parent, and its contribution to the consolidated profit or loss for financial year 2023–24 is less than 1 percent.
After receipt of the show-cause notice on Monday, One97 Communication’s share price dropped over 5.5 percent to end at ₹833.05 apiece on the National Stock Exchange as of Friday, 02 May 2025.
