GST claim on online gaming: Finally, a sense of finality
The Supreme Court has spoken-on an issue which will impact an industry which Deloitte, the consultancy firm, has estimated would be worth US$ 8.6 billion by FY 27. On an issue which will result in demands estimated at about Rs.2.5 lakh crore, including tax, interest and penalty, getting decided, by far the biggest in India’s litigation littered fiscal landscape. And, on an issue which has been hanging fire for the last 5 years.
The issue relates to the imposition of Goods & Services Tax (GST) on online gaming platforms, at what rate and at what value. ‘Interlinked and interwined’ with this issue was the related issue which has also been decided in a separate judgement as to whether protection to games of skill under Entry 34 of List II of the Seventh Schedule to the Constitution of India is available when betting also takes place.
By way of background, it may be mentioned that the case originated in 2022 when the Director General, GSTI, issued a notice to a Bengaluru-based company operating online rummy platforms. The notice raised a demand suggesting that the company was supplying ‘actionable claims’ and was hence liable to pay GST at 28% on the full-face value as against 18% on the platform fee.
Actionable claims under GST as it stood in 2017 were those where there is a claim to an unsecured debt which are not in the claimant’s actual possession; the law treats them as goods and exempts them, other than, lottery, betting, gambling; there was no mention of casinos, horse racing, online gaming. In other words, lottery, betting, gambling was subject to levy of GST— and there was ambiguity in respect of casinos, horse racing, online gaming.
The department alleged misclassification/fraud- the demand was to the tune of about Rs.21,000 crore. The Karnataka High Court quashed the demand holding that games of skill cannot be construed to be gambling or betting and hence cannot be levied to GST. This distinction between games of skill and games of chance was time tested distinction again based on Supreme Court decisions. The department appealed to the Supreme Court against this decision. Several other jurisdictional courts had also passed orders on the issue.
Parallelly, the GST council was seized of the issue given the revenue ramifications and the conflicting concerns of very many States-some for, many against. A Group of Ministers (GoM) was constituted to examine the matter and give its recommendations to the Council. The GoM recommended 28% on the full value and suggested that no distinction be made between games of skill or chance.
The 47th GST council which met was an inconclusive affair with concerns about the levy on casinos. Two back-to-back GST Council meetings were held in July and August 2023 to discuss the matter (the 50th and 51st) where finally a consensus was reached that 28% is leviable on the full-face value and that there will be no distinction between games of skill or chance.
Critically the Council approved several amendments to the GST rules making the levy explicit; online money gaming was defined, specified actionable claims now included betting, casinos, gambling, horse racing, lottery and online money gaming. They were held to be clarificatory in nature-in other words the Council in effect approved its retrospective applicability from when GST had been launched, 1.7.2017.
In effect an industry which was paying 18% GST on the amount which it retained (platform fee) was now being asked to pay 28% from 2017 on the entire amount —the constitutionality of these decisions as also of the various high court orders were clubbed and were the matter before the Supreme Court.
Arguments by a host of legal luminaries concluded in August 2025; the two bench Supreme Court decision was delivered in May 2026. The apex court has confirmed the levy of GST on actionable claims arising from betting and gambling transactions, the challenge to the constitutional authority to carry out the amendments to the GST Act and rules was rejected— and most significantly; that the amendments introduced in 2023 in the GST Act and Rules are clarificatory in nature and would apply retrospectively.
Further the Supreme Court has restored the show cause notice issued by the Central GST which was quashed by the Karnataka High Court. It directed that all pending show cause notices be decided accordingly; replies to be given to the departmental notices within eight weeks and orders to be passed by the department within twelve weeks thereafter.
The same bench had also disposed of an order of the Madras High Court and held that the State Legislatures are competent under Entry 34 of List II of the Seventh Schedule of the Constitution (betting and gambling), that games of skill cannot be a gambling enterprise. In other words, once wagering enters the picture the game ceases to be a game of skill, and that betting and gambling are outside the protection guaranteed under Article 19(1)(g) (the right to practice any profession or trade) of the Constitution.
This was in the context of orders passed by Tamil Nadu under the Tamil Nadu Online Gambling Act expanding the scope of gaming to cover betting even on games of skill like online rummy/poker. Karnataka too had passed similar legislation. The Supreme Court adopted a moral tone and held that results in addiction, financial ruin, suicides and hence that even the founding fathers clearly intended even rummy and, a game of skill, to be regulated. This decision overturned very many earlier decisions which made a distinction between games of skill and chance.
Both the Supreme Court decisions are unprecedented. Retrospective amendment which has always been frowned upon by the Courts has been sanctified — that too in a matter where clearly there was interpretative confusion. The Supreme Court has concluded its order on online gaming stating that ‘Fiscal certainty in emerging technological sectors is not merely a matter concerning individual assesses. It bears directly upon investor confidence, digital entrepreneurship, technological innovation, interstate commerce and India’s broader aspiration to emerge as a leading digital economy.
Predictability, consistency and coherence in taxation jurisprudence are therefore indispensable components of sound economic governance. As pointed out by two young lawyers, Manjunath A.N and Arjun Raghavendra M, it is a moot point whether the judgement passes this stern test. Finally, this long pending issue has attained finality; however, it results in a piquant situation of the department raising demands which will be more than the market value of the companies and confirming them in the light of the Supreme Court decision. It will be interesting to see how much of the confirmed demands will finally be recovered.
