GST on online gaming: SC quips, ‘Fate of this litigation depends on our skill, can’t take a chance’

In a courtroom charged with anticipation and the weight of ₹2.5 lakh crore hanging in the balance, the Supreme Court of India continued hearing one of the most consequential tax disputes in recent memory. On Wednesday, a division bench comprising Justices JB Pardiwala and R. Mahadevan heard the arguments of E-gaming Federation.

During the hearing, Justice Pardiwala on a lighter note quipped, “The fate of this litigation depends on our skill — we can't take any chance.” The entire matter hinges on the complexities and distinction between game of skill and chance.

The matter lies a deceptively simple but deeply consequential question: should online games of skill be taxed the same way as gambling and betting under India’s Goods and Services Tax (GST) regime?

Representing the E-Gaming Federation (EGF), former Solicitor General and senior advocate Harish Salve took center stage, laying out a robust case that online gaming is being fundamentally mischaracterized under current GST notifications.

“No one is arguing that games of skill can’t be regulated when there’s money involved,” Salve told the bench. “But that’s a far cry from claiming that games of skill suddenly become games of chance just because stakes are introduced.”

Salve's argument hinges on the definition of "actionable claims"—a term crucial to determining how online games are taxed. He questioned whether the entry fees paid by players to participate in skill-based games like rummy or fantasy sports can be equated with “actionable claims” as defined under GST law. Citing the Supreme Court's 2006 ruling in Sunrise Associates, Salve emphasized that actionable claims typically involve a transferable right to a future benefit—like a lottery win—which doesn’t exist in skill-based gaming platforms.

“Online platforms are facilitators,” Salve asserted. “They don't offer any actionable claim. There is no guaranteed win, no transfer of rights—just competition among players.”

Yet under Rule 31A of the CGST Rules, tax authorities have classified participation in these games as equivalent to betting and gambling. This rule mandates that the entire face value of a bet be considered taxable at 28%, not just the operator’s earnings. Salve pointed out the significant flaw in this approach: gaming platforms typically retain only around 10% of the total entry fee as their platform fee, and even this already includes an 18% GST. The department's interpretation, however, seeks to levy 28% GST on the full entry fee amount—more than doubling the platform’s actual revenue in tax obligations.

“The operators are being taxed on money that never enters their accounts,” Salve said. “Players compete against each other. The platform simply hosts the game. How can that be equated with gambling?”

The implications of this case stretch far beyond courtroom semantics. With a staggering ₹2.5 lakh crore at stake, the outcome could reshape India’s digital gaming industry and establish a precedent for how skill-based digital services are taxed.

Gaming companies argue that Rule 31A was crafted for classic gambling scenarios—like horse racing and lotteries—where the outcome relies purely on chance. Applying it to games that require strategy, knowledge, and skill, they contend, not only misinterprets the law but risks stifling one of India’s most promising tech sectors.

As arguments will continue on May 15, what’s at stake is not merely a tax classification, but the very future of online gaming in India.