In a significant development for the online gaming industry, the Supreme Court of India has granted interim relief to Paytm's subsidiary, First Games Technology Private Limited, by staying a substantial Goods and Services Tax (GST) demand notice. The notice, amounting to ₹5,712 crore, was issued by the Directorate General of GST Intelligence (DGGI) and pertains to the period from January 2018 to March 2023.

Background of the GST Notice:

The DGGI's notice contends that First Games should have paid a 28% GST on the total entry amount collected from users, rather than the 18% GST it paid on the platform fee or revenue. This interpretation significantly increases the tax liability for the company. First Games, aligning with industry practices, has been paying GST on the platform fee, which is the revenue earned after distributing winnings to players.

Industry-Wide Implications:

This issue is not isolated to First Games. Several online gaming companies have received similar notices, leading to an industry-wide concern over the retrospective application of the 28% GST rate. The Supreme Court's stay on these notices provides temporary relief to the sector, which has been grappling with the financial implications of these demands.

First Games' Response:

In response to the notice, First Games plans to file a writ petition challenging the DGGI's interpretation and the retrospective application of the GST rate. The company argues that the amendment to the GST rate, effective from October 1, 2023, should not apply to the period before its implementation. First Games will seek interim relief similar to that granted to other gaming companies in the industry.

Impact on Paytm:

Paytm, the parent company of First Games, has clarified that the GST notice does not materially impact its operations or financials. First Games is treated as a joint venture in Paytm's consolidated financial statements, and its revenues are not consolidated. As of March 31, 2024, the carrying value of Paytm's investment in First Games was nil, and its exposure is limited to approximately ₹225 crore, primarily through shareholder loans.

Market Reaction:

Following the Supreme Court's stay on the GST notice, Paytm's shares experienced a positive movement. On May 26, 2025, the shares rose by 1.4% to reach a high of ₹856.75 on the Bombay Stock Exchange. This uptick reflects investor confidence in the company's handling of the situation and the temporary relief provided by the court's decision.

Conclusion:

The Supreme Court's intervention in staying the ₹5,712 crore GST notice against First Games is a significant development for both the company and the broader online gaming industry. While the matter is pending final adjudication, the interim relief offers a respite to companies facing similar tax demands. Paytm's clarification on the limited financial impact further reassures investors and stakeholders about the company's stability amid regulatory challenges.

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