Additionally, to prevent or pre-empt these companies from moving base offshore, in order to protect their customers from paying the increased GST burden, the council has recommended that even offshore entities offering such online money gaming to Indian consumers have to register and are liable to pay GST. Gaming companies said this could set the industry back heavily.

It is important to note that the applicable GST laws do not reflect on the legality or illegality of a business with respect to skill based gaming or gambling —that it implies that the businesses it is talking about are only the ones that are legally operating in India.

But the council did clarify that there will be no double taxation. It said that the valuation of supply of online gaming and of actionable claims in casinos may be done based on the amount paid or deposited with the suppliers by or on behalf of the players excluding the wins and bets, not on the value of each bet placed.

This simply means that there will be no repeat taxation and say when a player deposits ₹100, they will only be taxed on that amount and not for every game that they play with that money. Eventually, it is the player that is taxed and not the platform.

A rummy operator said, this is the highest tax rate in the world, and will have a crippling impact on the online rummy industry. It will foster the creation of black market gaming businesses and impact their ability to operate in the market.

"This will likely result in closure of our platforms and businesses and over time, the black market operators will siphon revenue from legal, taxpaying operators and consumer protection will be at risk."

A statement from The All India Gaming Federation agreed. The decision, it said, by the council of valuation on deposits will severely impact the online gaming sector and result in a situation where a majority of players, including the MSMEs will no longer be able to survive in the face of a humongous tax liability of 400-500%. The federation represents companies like Mobile Premier League, Zupee, Gameskraft, A23, Nazara, etc.

And while established and well entrenched skill gaming companies would be able to scrape through, even their revenues and valuations will significantly fall.

Saumya Singh Rathore, Co-Founder at WinZO, said that the Online Skill Gaming sector is not a homogeneous category and has fairly diverse, nascent, and distinct business models that we request be evaluated more carefully.

"Taxing GST on deposits rather than the technology platform commission charged by the companies will make the unit economics unviable, wiping out 80% of the industry, with fatality concentrated in MSMEs and Startups that house new age business models. This increase of 400% will solely encourage the rise of monopolistic play. Reasonable taxation can protect our over 500 million internet consumers from illegal offshore products. With over $3 billion of FDI in the sector, protecting and encouraging home-grown companies will help us contribute to the Honorable Prime Minister's vision of a Trillion Dollar Digital Economy."

The Federation of Indian Fantasy Sports & E-Gaming Federation, which represent about 50 Indian online gaming companies, said the new tax framework will lead to a very burdensome 350% increase in GST and set the Indian online gaming industry back several years.

A legal firm added that investors in this sector may now be concerned given the 'blow hot, blow cold' approach of the government towards the online gaming sector where on the one hand, it is lauded and encouraged through 'light touch' regulations by the Ministry of Electronics and Information Technology and on the other hand, punitive taxation is reaffirmed to be imposed under GST (despite several pleas from the sector) by levying the same level of GST as 'betting and gambling' on online games of skill. "It has ignoring decades of settled legal position that games of skill cannot be equated with gambling," said Sudipta Bhattacharjee, partner, Khaitan & Co.