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India on Tuesday decided to impose a 28% indirect tax on the turnover of online gaming companies, a state minister said, in a major setback to the country's $1.5 billion industry.

Foreign investors such as Tiger Global and Sequoia Capital have backed Indian gaming startups like Dream11 and Mobile Premier League, hugely popular for fantasy cricket.

The GST Council, comprised of state finance ministers and chaired by the federal finance minister, had earlier formed a panel to look into taxing casinos, horse racing and online gaming.

It has not previously been able to decide whether to impose a 28% GST on the face value of bets, or gross gaming revenue, or just on platform fees.

Sudhir Mungantiwar, minister from the state of Maharashtra, said the tax on online gaming companies would be imposed without making any differentiation based on whether the games required skill or were based on chance.

"This means that GST will be applicable to gross revenue/total prize pool," said Roland Landers, CEO of The All India Gaming Federation. "We believe this decision by the GST Council is unconstitutional, irrational, and egregious."