Big Blow to Gaming Firms: Supreme Court Upholds 28% GST on Online Bets

The Supreme Court on Wednesday ruled in favour of the government in the long-running GST dispute involving online gaming companies. The Court said that charging 28% GST on the full amount staked by players on gaming platforms is legally valid, even for the period before October 1, 2023.

A Bench of Justices JB Pardiwala and R Mahadevan held that online gaming companies are not just intermediaries or service providers. Instead, they are suppliers of “actionable claims,” which can be taxed under GST laws.

The Court also said that once players put money on games involving uncertain outcomes, even skill-based games such as rummy can be treated as betting or gambling for GST purposes. Because of this, GST can be charged on the entire entry amount or bets placed by users and not only on the platform’s commission or earnings.

The judgment overturned an earlier Karnataka High Court ruling that had favoured gaming company Gameskraft. The High Court had earlier said that online rummy is a game of skill and that the company was not liable to pay GST in the way claimed by tax authorities.

The Supreme Court has now restored a 2022 GST notice sent to Gameskraft to pay nearly Rs 21,000 crore as taxes. But the Court clarified that the final tax liability will be determined by GST authorities in further proceedings.

The dispute began after tax authorities said online gaming companies should pay 28 per cent GST on the full value of the bets and contest entry fees collected on their platforms. Gaming companies said GST should be levied only on their actual earnings, or gross gaming revenue, after deducting player winnings.

The issue was furthered by the GST Council in 2023 when it decided to formalise 28% GST on online gaming, casinos and horse racing on the full face value of bets. The government said that this was just a clarification of existing law, while gaming companies said that the rule should only apply from October 1, 2023, and not retrospectively.

Initially, the total tax exposure for the gaming industry was estimated at Rs 1.12 lakh crore, which could swell to Rs 2.5 lakh crore after penalty and interest, reports said.

The Supreme Court has now said that the 2023 GST amendments were merely clarificatory.

The ruling is likely to impact online gaming and casino operators across India. With this judgment, the pending GST notices and tax proceedings against such companies will now proceed.