Paytm’s Gaming Subsidiary to Legally Contest Rs. 5,712 Crore GST Notice

One97 Communications Ltd (OCL), the parent company of digital payments platform Paytm, has recently disclosed that its gaming subsidiary, First Games Technology Pvt Ltd, has received a show-cause notice from the Directorate General of GST Intelligence (DGGI). The notice received on 28 April 2025 is part of a broader investigation into Goods and Services Tax practices ongoing within the Gaming sector. It’s a matter that has been under regulatory examination for more than 18 months.

What’s this Ongoing GST Investigation in Online Gaming Sector?

This ongoing investigation is the result of a dispute over the applicable GST rate and its calculation base. The DGGI has clearly stated that GST should be levied at 28% on the entire entry amount that is collected from those participating in online games. This is in contrast to the 18% GST that is currently paid by almost every gaming platform which is applied only on the platform fee or operator’s margin. This reclassification, if enforced retrospectively, could progress to massive tax liabilities across this sector.

Industry-Wide Impact

In its regulatory filing, Paytm stressed that the SCN issued to its subsidiary is not the only case, as several other gaming operators have also received the same kind of tax demands. The industry-wide nature of the dispute has pushed numerous companies to approach the Apex Court. The court has stayed on the ongoing proceedings in related cases while hearing writ petitions challenging both the retrospective application of the revised GST rule (effective from 1 October 2023) and its interpretation under the prior laws.

Paytm’s Legal Strategy

Paytm confirmed that the subsidiary will file a writ petition for contesting the show-cause notice on legal grounds, preparing and submitting its defense with the arguments already raised by peers in the gaming industry. The petition will also seek interim relief from the court, as it has granted to other firms in the same sector to temporarily pause further proceedings while the matter remains sub judice.

GST Notice Impact on Paytm

The notice imposes a heavy GST liability of ₹5,712 crore, including both interest and penalties for the period January 2018 and March 2023. Even upon involvement of such a massive value, Paytm assured stakeholders that this matter won’t have any material impact on its overall operations or financial status. The company further said that First Games is treated as a joint venture, and its revenues are not consolidated into OCL’s books as per the accounting standards.

For the financial year ending 31st March 2024, First Games’ contribution was even lower than 1% to Paytm’s consolidated profit or loss, and its carrying investment value stood at nil. Moreover, OCL’s total financial exposure to First Games, till 31 December 2023, was approximately ₹225 crore, majorly as a shareholder loan including accrued interest.

The development underscores the bigger challenges that the online gaming industry is currently facing in India as it navigates dynamic tax policies and awaits judicial clarity on the treatment of GST for gaming transactions.

Final Words

In response to ₹5,712 crore GST notice, Paytm’s move underscores the growing legal complexity in India’s online gaming sector. As First Games is preparing to challenge the GST demand, the result may have a far-reaching impact on the entire industry, which awaits clarity on GST treatment under dynamic regulations. To tackle such GST notices, consult Setindiabiz for expert assistance.