Supreme Court Upholds 28% GST Levy On Online Gaming, Classifies It As Betting & Gambling

New Delhi, May 29 (KNN) In a ruling with far-reaching implications for India’s online gaming industry, the Supreme Court has upheld the levy of GST on the full amount staked by players, rejecting the industry’s contention that the tax should apply only to platform revenues.

A bench comprising Justices J B Pardiwala and R Mahadevan on Wednesday held that the constitutional validity of levying 28 per cent Goods and Services Tax (GST) on the full face value of online gaming bets, dismissing challenges mounted by gaming companies against the levy under the Central GST Act.

The court declared there was no constitutional infirmity in the levy and validated the rules under the CGST framework for determining taxable supplies across lotteries, betting, gambling, horse racing, and casinos.

Skill vs Chance: Settled for GST Purposes

At the core of the dispute was whether online games such as fantasy sports, rummy and poker should be classified as games of skill rather than gambling for differential GST treatment, a distinction the court rejected. 

It held that betting and gambling are defined not by skill versus chance but by the presence of stakes on uncertain outcomes, meaning any activity involving monetary stakes on such outcomes qualifies as betting and gambling under GST, regardless of skill. 

The court also ruled that online gaming platforms are not mere intermediaries but suppliers of actionable claims—contingent interests in movable property—and are therefore liable to pay GST on the full value of stakes placed by users.

The Tax Dispute 

Prior to legislative amendments in 2023, online gaming companies generally paid GST at 18 per cent on their platform fee or commission — commonly known as Gross Gaming Revenue (GGR). Under this model, on a Rs 100 player deposit, only the platform's Rs 10 commission was taxed, resulting in a liability of Rs 1.80.

The Directorate General of GST Intelligence (DGGI) took the view that GST should apply to the entire amount staked, not just the platform's cut. At 28 per cent on the full Rs 100 deposit, the tax liability rises to Rs 28 — more than 15 times higher under the old model.

In October 2023, the GST Council formalised this position, imposing 28 per cent GST on the full face value of bets. Parliament subsequently amended the CGST Act to introduce specific definitions for online money gaming and codify the new tax treatment.

Industry Stakes

Gaming companies had been served show-cause notices alleging GST evasion of Rs 1.12 lakh crore. With the GST law allowing penalties of up to 100 per cent of the tax demand, the total potential liability could rise to around Rs 2.5 lakh crore—making it one of the largest indirect tax disputes in India’s digital economy.

In June last year, the Supreme Court had stayed GST proceedings against 49 gaming firms in relation to retrospective tax demands, extending interim relief for an additional three months. The latest ruling effectively lifts that protection, clearing the way for tax authorities to resume and pursue these demands.

The court also dismissed the contention that the steep tax burden made the levy unconstitutional, stating that “mere commercial hardship, reduction in profitability or increase of tax incidence cannot by themselves render a fiscal measure unconstitutional.”

Govt's Power to Ban Online Gambling

In an additional observation, the court said addiction to online betting and gambling is disrupting society and undermining public order, and affirmed that the government may prohibit such activities in the interest of public health. It added that online gaming companies cannot claim a violation of their fundamental right to carry on trade or business.

(KNN Bureau)