The Indian government has sought an adjournment in the Supreme Court case concerning the retrospective imposition of a 28% Goods and Services Tax (GST) on gaming companies. With an estimated financial impact of ₹2.5 lakh crore, this is one of India's most significant tax disputes and could reshape the online gaming industry. The case is crucial in determining the future of taxation for skill-based gaming platforms.
Background
The GST Council, in its 50th meeting in July 2023, decided to impose a 28% tax on the full face value of bets placed in online gaming, casinos, and horse racing. Previously, gaming companies were taxed only on platform fees or gross gaming revenue (GGR), resulting in a significantly lower tax burden. The sudden shift to taxing the entire bet amount led to widespread legal disputes, with industry stakeholders arguing that skill-based games should not be equated with gambling.
The legal battle intensified when Gameskraft received a ₹21,000 crore GST notice, which was quashed by the Karnataka High Court but later stayed by the Supreme Court in September 2023. The industry gained temporary relief in January 2025 when the Supreme Court stayed show-cause notices amounting to ₹1.12 lakh crore. However, the core issue of tax applicability remains unresolved.
Why is the Tax Being Challenged?
The retrospective GST demand is being contested by both the government and the gaming industry, albeit for different reasons:
Government’s Position
The tax authorities argue that:
Online gaming involving monetary stakes constitutes betting or gambling and should be taxed at 28% under Rule 31A of the CGST Rules.
Taxing the full face value of bets aligns with the treatment of traditional betting and gambling activities.
The sector has witnessed exponential growth, and higher taxation ensures greater revenue collection for the government.
Gaming Industry’s Position
On the other hand, the gaming industry contends that:
Misclassification: Skill-based games like poker, rummy, and fantasy sports differ fundamentally from games of chance and should not be taxed similarly to gambling.
Economic Impact: A 28% tax on the full bet value instead of platform earnings is financially unsustainable and could lead to industry contraction, job losses, and reduced investments.
Legal Ambiguity: Rule 31A was originally intended for gambling and horse racing, and its application to online skill-based games is being challenged in court.
Latest Update
The Supreme Court hearing scheduled for March 18, 2025, was postponed after the government sought an adjournment due to another taxation matter. The delay extends uncertainty for the gaming sector, which awaits clarity on tax treatment and regulatory policies.
Implications of the Ruling
A Supreme Court decision in favor of gaming companies could reinforce the distinction between skill-based gaming and gambling, offering much-needed legal clarity. It would also impact investor confidence and taxation policies in the digital gaming space. However, if the ruling favors the government, it could lead to increased financial burdens for the industry, potentially forcing structural changes or exits by several operators.
