Supreme Court upholds 28% GST on online gaming; ₹1 lakh cr tax burden looms

In what is being seen as a setback to gaming companies, the Supreme Court on Wednesday upheld the constitutional validity of the 28% goods and services tax on online gaming companies on a retrospective basis, backing the tax demands of over Rs 1 lakh crore on these firms.
 
The decision by the court is seen to settle the position of law on this issue and is expected to lead to significant tax payments by online gaming companies although many have since then shut shop. A bench of Justices JB Pardiwala and R Mahadevan held that online gaming platforms are not just intermediaries but are to be treated as suppliers under the goods and services tax regime.
 
Sudipta Bhattacharjee, Partner, Khaitan & Co, who represented several online gaming and casino companies before Supreme Court in this batch said the apex court pronounced two separate judgments --  one on the appeals filed by State Governments against High Courts in Tamil Nadu, Karnataka and Kerala quashing state legislations prohibiting or restricting online money gaming; and second on the GST issues spanning more than Rs 2.5 lakh crore affecting the entire sector. “In this first judgment, the validity of the anti-online gaming State laws of Tamil Nadu, Kerala and Karnataka have been upheld by reading ‘betting’ as something different from ‘gambling’,” he noted.

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The second judgment on GST may not practically yield to anything significant for GST authorities - with the complete ban on online money gaming now, most companies have either shut down or pivoted to some other area of business, he said. “Thus, any attempt at recovering such massive GST attempts may not practically yield any results since the GST amounts demanded are several times higher than cumulative revenues ever earned by these companies,” Bhattacharjee said.

GST on online gaming
 
The ruling on GST revolves around the interpretation of applicability of GST on online gaming and notices for tax demand sent by GST authorities. The tax department has been of the view that a 28% GST should be applied on the total contest entry amount, effectively taxing the entire prize pool. The GST Council had then amended the law, effective October 1, 2024 to this effect. However, online gaming companies had contended that GST should only be levied on the platform fees or commissions as these games involve skill rather than chances. Further, they contended that the amendment was retrospective in nature.
 
Nitin Vijaivergia, Partner, Price Waterhouse & Co noted that the Supreme Court has confirmed that GST will apply at the highest rate to the entire bet value in online gaming, not just to the fees collected by gaming companies. The court dismissed arguments distinguishing 'Game of Skill' from 'Game of Chance,' holding that online gaming falls within betting and gambling once a stake is placed. “This decision is retroactive, meaning it could have an impact for the period even before 2023, when the law was amended. As a result, the gaming industry now faces substantial challenges, including significant past tax liabilities along with interest and penalty and the prospect of paying GST at 40% from September 2025,” he explained.

More and more tax
 
Experts believe that companies may not have to review operations and find funds to pay the tax demands. Further, with the 28% GST now at 40% from September 2025, these companies would have to face a higher tax going forward.

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Sivakumar Ramjee, Executive Director- Indirect Tax, Nangia Global Advisors LLP said that with reported tax exposure across the sector estimated at over Rs 1 lakh crore, this is no longer merely a litigation issue, it is a balance-sheet event. “Major real-money gaming operators such as Gameskraft, Dream11, Mobile Premier League (MPL), Games24x7, Junglee Games, Delta Corp and several online rummy, poker and fantasy sports platforms are likely to feel the immediate impact of the ruling whether through ongoing tax disputes, business-model recalibration, investor scrutiny, or future compliance costs,” he said.
 
Ikesh Nagpal, Lead-Indirect Tax, AKM Global said that companies will need to immediately quantify their retrospective GST exposure, engage proactively with the adjudication of pending show-cause notices, and make a hard commercial decision, whether to settle, restructure, or wind down. “Investors and foreign backers will be reassessing their positions, and fresh capital into the sector will be difficult to attract given the confirmed legal and regulatory headwinds. Some platforms may pivot to free-to-play or advertising-based models to survive, while others may explore offshore restructuring,” he said.