The online gaming industry is staring at a potential liability of around ₹2.5 lakh crore after the Supreme Court upheld the levy of 28% GST on the full face value of bets placed on online gaming platforms, along with supporting rules for valuation across betting, gambling, lotteries, horse racing and casinos, reported TOI.
A bench of Justices J B Pardiwala and R Mahadevan of the Supreme Court of India ruled that there was no constitutional defect in taxing online gaming at 28% on the entire bet value and upheld the CGST framework used to determine taxable supplies in such activities.
The ruling strengthens the position of the tax authorities who have issued show-cause notices to gaming companies alleging GST evasion of about ₹1.12 lakh crore. With penalties that can go up to 100% of the tax demand under GST law, the total exposure rises to nearly ₹2.5 lakh crore.
The industry has long argued that GST should apply only on gross gaming revenue — the platform’s earnings — rather than the total value of every bet placed.
In October 2023, the GST Council had decided to impose 28% GST on the full face value of online gaming bets, a move that significantly increased the tax burden on real-money gaming platforms.
Earlier, in June last year, the Supreme Court had stayed GST proceedings against 49 gaming companies facing retrospective tax demands and extended interim protection for three more months while the legal challenge was heard.
The bench also took a broader view of state powers to regulate or prohibit online betting and gambling, while hearing appeals linked to decisions by state governments.
The court upheld laws brought in by the Government of Tamil Nadu and the Government of Karnataka that criminalised online betting and money-based gaming, reversing earlier rulings by the high courts that had struck down those restrictions.
The bench observed that courts had taken an overly narrow view while examining the state laws and restored their validity.
The Tamil Nadu framework originated with an ordinance in November 2020, later replaced by the Tamil Nadu Gaming and Police Laws (Amendment) Act, 2021. Karnataka had also enacted a similar law, which was earlier struck down by the Karnataka High Court in 2022. The Madras High Court had also quashed similar provisions in Tamil Nadu.
Restoring the legal position, the court said: “When the element of betting and gambling enters the picture, the nature of the game ceases to be of relevance.”
Addressing arguments from gaming companies that such activity is protected under the right to trade, Justice J B Pardiwala, speaking in open court, said “betting and gambling does not need any protection” and that states are empowered to regulate and restrict such activities.
The court also noted concerns about the social impact of online gambling, including addiction and its broader effects on mental health and public order, while rejecting claims that games involving skill fall outside the scope of state regulation when money-based wagering is involved.
The ruling is expected to influence the ongoing legal scrutiny around the proposed Promotion and Regulation of Online Gaming Act 2025, which has been challenged over its validity and broader implications for the sector.
In submissions before the court, the Centre had defended the proposed framework, arguing that unregulated online gaming poses risks linked to financial crime and broader social harm, and said the legislation was designed to protect vulnerable users and the integrity of financial systems, though it also noted that the law has not yet been brought into force.
With inputs from TOI
