Faced with thousands of crores of GST demand, what’s next for the real money gaming industry?
On May 27, 2026, the Supreme Court dealt a decisive blow to the online real-money gaming industry, which was already banned by the central government after the passage of the Promotion and Regulation of Online Gaming Act, 2025 (“PROGA”), and a subsequent notification bringing it into force from May 1, 2026.
Vide its judgment in Directorate General of Goods and Services Tax Intelligence (HQS) v. Gameskraft Technologies Private Limited (“Gameskraft judgment”), a division bench of the Supreme Court rejected the constitutional and legal challenges raised by online gaming and casino companies to several provisions of the GST law. It upheld the show-cause notices cumulatively worth over one lakh crore rupees issued by the GST Department against the companies. The court also held that Rule 31A of the CGST Rules, which allows taxation of actionable claims in the form of betting and gambling on the face value of bets, is legally and constitutionally valid.
The court, while overturning several High Court judgments, also held that staking money on any game, whether of skill or chance, amounts to gambling and betting.
Crucially, the court also ruled that Rule 31B of the GST Rules, which was introduced with effect from 1st October 2023 and taxes online money gaming transactions on initial deposits instead of on each bet/contest entry as contemplated under Rule 31A, is clarificatory and will apply retrospectively.
The apex court, while coming to this conclusion, overruled the decision of the single bench of the Karnataka High Court that had decided in favour of Gameskraft. Gameskraft had contended that it had duly discharged GST on the platform fees (the commission charged per game) from the players and that its activity of offering online rummy did not amount to gambling or betting.
The court ultimately directed that pending show-cause notices issued under Rule 31A be recomputed under Rule 31B. The court also permitted the companies to reply to the show-cause notices within eight weeks and further directed the adjudicating authorities to pass appropriate orders within a period of 12 weeks thereafter.
More than half a dozen gaming companies have filed review petitions in the Supreme Court challenging the correctness of the key conclusions and findings rendered in the Gameskraft judgment. These review petitions are currently pending listing before the Supreme Court. However, as things stand, the Gameskraft judgment is the law of the land until it is reviewed or reconsidered by a larger bench of the apex court.
Retrospective GST liabilities: Beating a dead horse?
Although the Supreme Court’s ultimate finding that the show-cause notices are to be assessed under Rule 31B instead of Rule 31A will significantly reduce the potential cumulative liabilities of online gaming companies from the estimated liability in the show-cause notices of over one lakh crores, they would still run into several thousands of crores. This amount could further go up by two or three times if interest for the past period and up to 100% penalty on the tax amount sought to be imposed by the department are added.
Real-money gaming companies are now appearing before the adjudicating authority, which shall have to consider all factual aspects and other legal grounds, besides those on which the Supreme Court has rendered its findings, and pass its final order by the third week of October, as per the timelines imposed by the apex court.
These GST proceedings essentially amount to flogging a dead horse, as real-money gaming companies have shut down their platforms since Parliament passed PROGA in August 2025 and carried out mass layoffs. While some real-money gaming (RMG) companies have pivoted to other adjacent fields such as social games, fintech, stock broking and microdramas, most of them do not seem to have found the right product-market fit, fresh funding or scale in these new attempts.
With most RMG companies anyway on the verge of bankruptcy post-PROGA and largely unsuccessful attempts at pivoting their businesses, the question of recovering the tax demands, if confirmed by the authorities, would be more of an academic exercise.
The important question worth considering is whether the provision invoked by the department for most of the show-cause notices, i.e. Section 74 of the GST Act, which pertains to short payment of tax by reason of fraud, wilful misstatement or suppression of facts to evade tax, would apply, especially since the companies paid tax based on the judgment of the Karnataka High Court, which had ruled in favour of Gameskraft, as well as other High Court precedents that had consistently ruled that the activity of online skill-based games did not amount to either gambling or betting.
Further, the issue of how to tax online real-money gaming companies was deliberated extensively over several GST Council meetings, finally leading to the insertion of several amendments in law, including Rule 31B in 2023. The question, therefore, is how there can be fraud, suppression of facts or wilful misstatement in not paying tax under a rule that was not even in existence for the period for which the tax is now being demanded by the department.
Another connected issue is whether the department might invoke Section 89 of the GST Act to personally try to recover tax dues from directors of gaming companies. Section 89 empowers the department to jointly and severally recover tax liability from persons who were directors of a private limited company during the relevant period when the show-cause notice was issued, unless such non-recovery is not attributed to their gross neglect, misfeasance or breach of duty.
Of course, it can be argued with considerable conviction that, in these facts, there was no gross neglect, misfeasance or breach of duty, as the companies and their directors merely followed the prevailing law and judicial precedents of the time. However, there is fear of departmental overreach in personally going after the directors, especially since the provision of Section 74 relating to fraud and suppression has been invoked.
Can the government take a pragmatic approach?
Since the RMG industry has been dead for over a year, there is little point in continuing litigation over past dues, which are impossible to recover, either from the companies or from their directors, who were operating under a bona fide assumption that they were paying tax properly as per the judicial precedents prevailing at the time. Further, the matter being mired in decades of appeals and litigation would also result in the government expending considerable time and resources on a matter that is unlikely to lead to any meaningful recovery of taxes.
A pragmatic way out of this quagmire is for the government, on the recommendation of the GST Council, to issue a notification under Section 11A of the CGST Act, which allows the government to waive short payment of taxes because of a general prevailing practice. In this case, since the entire industry was following a particular practice based on judicial orders, it is a fit case for bringing an end to the dispute by not requiring the industry to pay the pending dues.
Another possibility is for the Central Board of Indirect Taxes and Customs (CBIC) to issue directions or instructions to officials to either not invoke Section 74 or drop proceedings under Section 74 and treat cases of online money games pertaining to the period before October 2023 as non-fraud/suppression cases. CBIC can further instruct officials not to invoke Section 89 and not seek to recover the personal assets of RMG directors for the period before 2023.
It remains to be seen whether the government decides to take a pragmatic approach and give a decent burial to this dead industry or continues to be mired in litigation with RMG companies for the next several years.
Source : https://www.medianama.com/2026/09/223-gameskraft-india-real-money-gaming-gst-dues/
