Paytm’s First Games faces Rs 5,712 crore GST demand notice

First Games Technology Private Limited, a subsidiary of One 97 Communications Limited (OCL), the parent company of Paytm, has been issued a show cause notice by the Directorate General of GST Intelligence (DGGI).

The notice, received on April 28, 2025, proposes a goods and services tax (GST) liability of Rs 5,712 crore, along with applicable interest and penalties, for the period from January 2018 to March 2023.

According to Paytm’s disclosure to the National Stock Exchange (NSE), the DGGI has taken the view that GST should be calculated at 28% on the total entry amount collected by gaming companies, instead of the 18% paid on platform fees, which are the revenues generated by these firms.

Paytm stated, "This is an industry-wide issue where the GST department has sent notices to several gaming companies previously."

Paytm to challenge the notice

The company has decided to challenge the notice legally. It plans to file a writ petition, arguing against the retrospective application of the GST amendment dated October 1, 2023, and the interpretation of regulations prior to that amendment. It will also seek interim relief similar to what has been granted to other gaming companies. Paytm clarified that "this SCN does not have any impact on the operations or other activities of One 97 Communications Limited."

Paytm further explained that First Games is treated as a joint venture for group consolidation purposes, and its revenues are not consolidated into Paytm’s financial statements. The carrying value of Paytm’s investment in First Games was already nil as of March 31, 2024. Paytm’s exposure to First Games is limited to about Rs 225 crore, mainly from a shareholder loan and related interest.

Adding to its regulatory troubles, Paytm last month also received a show cause notice from the Directorate of Enforcement (ED) related to allegations concerning Little Internet Pvt Limited (LIPL) and NearBuy India Pvt Ltd (NIPL). These developments surface just as Paytm prepares to announce its fourth-quarter results. In the third quarter of the previous fiscal year (Q3 FY25), Paytm reported revenue from operations of Rs 1,828 crore and posted a loss of Rs 208 crore.

The online gaming industry has been under scrutiny for over 18 months regarding GST compliance, and the final outcome of these disputes is currently pending before the Supreme Court, which has granted interim relief to the companies involved.