SC verdict may hike tax burden on OTT platforms, gaming apps

New Delhi: The Supreme Court ruling allowing dual taxation on television broadcasters may increase tax burden on over-the-top (OTT) platforms such as Amazon Prime and Netflix and other subscription based digital content and even gaming applications, said experts.

In its May 22 judgment on Asianet Satellite Communications and others, a bench of justices BV Nagarathna and NK Singh ruled that broadcasting involves delivery of service and delivery of entertainment and can be taxed by different authorities.

This means the Centre can impose service tax on the act of broadcasting, while states are allowed to charge entertainment tax on the content consumed by viewers.


"The ruling is mainly premised on the basis that both taxes deal with different aspects of broadcasting activities and hence, there is no overlap in taxing powers of the Centre and state," said Saloni Roy, partner, Deloitte India.

She added that although the case relates to the pre-goods and services tax (GST)era, the judgment could have "significant implications" and that it has created tax uncertainty for the industry.

Experts said it may lead to decentralisation of tax. "By endorsing the 'aspect theory', which permits separate taxation of different elements of the same activity, the court has opened the door to potential dual taxation on digital platforms such as OTT services, gaming apps and social media," said Saurabh Agarwal, partner, EY.

He added the ruling has not only created more confusion for the industry, but also goes against the spirit of the GST, which was designed to unify and replace various indirect taxes, including entertainment tax. "This ruling may pave the way for states or even local bodies-under Entry 62 of the Constitution-to reintroduce such levies under the label of 'entertainment," Agarwal said, adding that this may pose a challenge for the GST Council.

In the pre-GST era, state governments were empowered to levy tax on entertainment.

"With the introduction of GST, state governments are still empowered to levy tax on entertainment and amusement. However, this is permitted through local bodies such as panchayats, municipalities, etc.," Roy said.

For instance, Haryana Municipal Entertainment Duty Act, 2019 permits levy of duties with respect to admission to public entertainments, which includes any exhibition, performance, amusement, game, sport or race to which persons are ordinarily admitted on payment.

Maharashtra Entertainments Duty Act, 2023 provides for the levy of duty in respect to entry to entertainment or exhibition, including direct-to-home broadcasting service, which is to be collected by local bodies.

Similarly, Tamil Nadu charges both GST and entertainment tax on Indian Premier League match tickets. The digital industry under the streamlined tax regime under GST was aware of the taxation burden, but this decision reintroduces uncertainty, with the possibility of more states taxing OTT platforms, content creators and gaming applications in the name of entertainment. "There are many factors which should act against higher taxes for digital media as an indirect impact of this judgment, including the lack of territoriality in delivery of such services," said Shashank Mishra, Partner, Shardul Amarchand Mangaldas & Co.