Mint Explainer: Online gaming's future—and its past taxes—hinge on this Supreme Court battle
India's Supreme Court is hearing a pivotal case that could dramatically reshape how online gaming platforms are taxed.
The tax tug-of-war traces back to the introduction of the GST in July 2017. Since then, online gaming platforms had been paying 18% GST on gross gaming revenue (GGR)—that is, the commission or platform fee they charged for hosting games.
But in 2023, the government threw a curveball. An amendment reclassified online gaming, along with casinos and horse racing, as 'actionable claims"—a term in Indian law that refers to claims on debts or beneficial interests that can be enforced through legal action. This classification puts such games in the same tax category as lotteries and betting.
As a result, from 1 October 2023, a new rule kicked in: a flat 28% GST on the entire entry fee or deposit, not just on the platform's commission. However, the government maintains that this tax treatment should apply retrospectively—i.e., from 2017 onward—arguing that the platforms were always liable to pay GST on the full bet amount, not just their cut.
At the heart of the matter: should the government's 2023 decision to treat all real-money online games as gambling for GST purposes be applied retrospectively—triggering years of back taxes and penalties?
The stakes are colossal, with tax authorities demanding a staggering ₹1.12 trillion from online gaming platforms and casinos, alleging wrongful classification under GST law. These demands, previously put on hold by the court, are now front and centre of this month's final hearings.
Also read: Games24x7 lays off staff as Supreme Court hears 28% GST case
This move ignited a firestorm of over 50 legal challenges from gaming companies, vehemently arguing that only their service fee should be taxed. The Karnataka High Court had even quashed a ₹21,000 crore GST demand against Gameskraft, declaring online rummy a game of skill, not chance.
Now, this contentious ruling has been clubbed with 27 writ petitions transferred from various High Courts, along with related appeals by platforms like the E-Gaming Federation and Play Games24x7. All eyes are on the Supreme Court's final, potentially game-changing verdict—one that could define the future of India's online gaming industry.
Mint explains what's at stake for India's gaming industry.
What are gaming companies saying?
Online gaming companies have strongly opposed the government's move to apply a 28% GST retrospectively on player deposits, calling it disruptive and financially crippling.
While firms have accepted the higher tax rate on the full entry amount—such as deposits or entry fees—they insist it should apply only going forward, from the date the rule was officially enforced.
Their main contention lies with the retrospective application of the tax, which seeks to levy 28% GST on past transactions that occurred before the new rule or clarification was issued.
'The retrospective nature of this tax is a body blow to the industry. It not only disrupts ongoing operations but also renders many business models unviable," said an executive with an online gaming company, requesting anonymity.
'We are not contesting regulation or taxation per se — but applying a 28% GST on deposits retrospectively, in some cases going back several years, creates an impossible financial burden. Companies had operated under a different legal understanding for years, often backed by court rulings distinguishing games of skill from gambling. To now be asked to pay massive sums retrospectively — with interest and penalties — destabilises the entire ecosystem," the executive added.
According to Ranjeet Mahtani, partner at Dhruva Advisors — a tax advisory firm, companies have adjusted to the new tax regime post-October 2023, even though it has shifted the tax base from GGR to the entire bet amount.
'To maintain viability, gaming companies may increase charges, offer innovative schemes and, ultimately, this (tax) burden will be passed on to the consumer. That's how they're probably managing, to some extent, to balance things out and stay afloat," he said.
Also read: Online gaming: One nation, one law may blaze a way out of the maze
Smita Singh, partner at S&A Law Office, said the online gaming industry believes only the entry fee paid by players, and not prize money or discounts, should be taxed. She added that applying a higher taxable value from the start of GST is unreasonable and poses a serious threat to the sector's survival.
Moreover, industry stakeholders continue to argue that many of these games are skill-based—a classification upheld by the Supreme Court in previous rulings—and therefore should not be subjected to the same tax slab as games of chance.
What is the government's stance?
Representing the Centre, Additional Solicitor General N. Venkataraman stated that the GST is aimed at the 'speculative outcome' tied to these games, rather than the games themselves—positioning such activities within the scope of gambling.
During the May 5 hearing, he added that the distinction between games of skill and games of chance is immaterial when money is at stake.
Quoting past Supreme Court rulings, he emphasised that any game played for stakes qualified as gambling. The government maintains that gaming platforms were liable to pay 28% GST on the full entry amount right from the beginning, and not just on the commission or GGR they earned.
'Whether you call it a game of skill, a game of chance, or something in between—if money is involved and users are putting in stakes, it falls under taxable gaming activity. The GST Council has made it clear that the tax applies uniformly," said a Directorate General of GST Intelligence (DGGI) official, requesting anonymity.
Why it matters
This case has massive implications for the future of India's online gaming industry, which has seen explosive growth.
If the Supreme Court rules in favour of the government and maintains the 28% tax rate on the total bet amount, the industry will face a higher operational cost, which could affect smaller platforms more severely. However, the larger companies might be able to absorb the tax burden by passing it on to consumers.
Also read: Amid lack of regulation, online gaming in limbo, failing to attract investment
If imposed retrospectively, the 28% GST could saddle companies with massive back tax liabilities amounting to tens of thousands of crores. The long-standing legal ambiguity over whether games are based on skill or chance has also resulted in uneven taxation and regulation—something a definitive Supreme Court verdict could help resolve.
Among the companies in spotlight, Gameskraft is facing a ₹21,000 crore tax demand, while Paytm's First Games has been served a ₹5,712 crore notice.
In total, 71 firms across the industry are staring at retrospective GST demands exceeding ₹1.12 trillion, with penalties potentially pushing that figure beyond ₹2.3 trillion, according to media reports.
What's next?
Penalties from 2017 onward are expected to be pursued by the DGGI, but the penalties may be softened due to the legal ambiguity around the interpretation of the laws, including amendments, especially if the court rules on the basis of such legal complexities, rather than concludes that these cases involved fraudulent tax evasion, explained Mahtani.
In the interim, the stay on DGGI notices protects gaming firms from immediate action. Regardless of the outcome, the ruling will sculpt not just taxation but the broader legitimacy and growth prospects of India's gaming sector.
Also read: Don't believe doomsday predictions—PC gaming is alive and kicking
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