Paytm’s subsidiary, First Games Technology Private Limited, has received a show cause notice from the Directorate General of GST Intelligence (DGGI), Delhi Zonal Unit, proposing a Goods and Services Tax (GST) demand of ₹5,712 crore, along with applicable interest and penalties. The notice, dated April 28, 2025, pertains to an ongoing GST matter affecting the online gaming industry and covers the period from January 2018 to March 2023. The DGGI argues that GST should be levied at 28% on the total entry amount collected by the platform, contrasting with the 18% GST currently paid on platform fees by online gaming companies. Paytm has clarified that this issue is not unique to First Games, as similar notices have been sent to several other gaming companies, and the matter is currently under consideration by the Supreme Court, which has provided interim relief in previous cases. First Games intends to file a writ petition to challenge the show cause notice on legal grounds, including opposing the retrospective application of a GST amendment effective from October 1, 2023. Paytm emphasizes that this notice will not have any operational or financial impact on One 97 Communications Limited, as First Games is treated as a joint venture, and its financials are not consolidated. Paytm’s investment in First Games is already valued at nil as of March 31, 2024, with a limited exposure of ₹225 crore in shareholder loans as of December 31, 2024.
Key Insights:
The primary focus of this news is the significant GST demand issued to Paytm’s gaming subsidiary, First Games, highlighting the ongoing dispute between the GST department and the online real money gaming sector in India. Key events include the issuance of the ₹5,712 crore show cause notice by the DGGI and First Games’ decision to challenge this notice legally, following the pattern of other gaming companies facing similar demands. The central contention revolves around the rate at which GST should be applied to online gaming platforms – whether it should be 28% on the total entry amount or 18% on the platform fee. This issue has far-reaching implications for the financial viability of online gaming companies. The fact that the Supreme Court is already hearing similar cases and has granted interim relief suggests a broader industry-wide concern and a potential legal battle ahead.
Investment Implications:
This development underscores the regulatory risks associated with the online gaming sector in India. While Paytm states that the notice will not impact its core operations or financials due to the joint venture structure of First Games, investors in Paytm should be aware of the potential negative sentiment that such large tax demands can create around companies with exposure to the gaming industry. The ongoing legal battles and the uncertainty surrounding the applicable GST rate could affect investor confidence in the entire online gaming ecosystem. For companies directly involved in online gaming, the potential liability of a 28% GST on the total entry amount could severely impact their profitability and business models. Investors should closely monitor the Supreme Court’s rulings on these industry-wide GST disputes, as they will have significant financial implications for gaming companies and potentially for related entities like Paytm that have a stake in this sector. The outcome could also influence future investment decisions in the burgeoning Indian online gaming market.
