On January 10th, 2025, the Indian Supreme Court temporarily stayed show-cause notices worth ₹1.12 lakh crore. These notices were issued under Goods and Services Tax (GST) proceedings against online gaming companies. The stay order was passed by a Bench comprising Justices J.B. Pardiwala and R. Mahadevan in response to petitions filed by 49 online gaming firms.
Solicitor General N. Venkataraman, appearing for the GST department, argued that some of the GST notices were set to conclude by February and halting these proceedings at this stage could harm the government’s interests by delaying the collection of significant revenue. Following the argument, the court scheduled the hearing for March 18. Mr. Venkataraman also contended that 28% GST must apply to the total contest entry amount, taxing the entire prize pool.
In response, the gaming companies argued that GST should be applied solely to their platform fees or commissions, rather than to the full face value of bets. They also emphasized that many of these games are based on skill rather than chance. The skill involved in these games distinguishes them from gambling activities, which are typically subject to higher tax rates.
Why Gaming Companies Went To SC?
In October 2023, the GST Council imposed a 28% tax on the full face value of bets placed on online gaming platforms. Gaming companies countered this, arguing that the tax should be levied on gross gaming revenue (GGR), rather than on the full face value. According to the gaming firms, taxing the full face value was excessive and could severely impact the industry.
By the end of 2023, online gaming faced 71 notices alleging GST evasion of ₹1.12 lakh crore for 2022-23 and the first seven months of 2023-24. Issued under Section 74 of the GST Act, these notices allowed authorities to impose penalties of up to 100% of the tax demand, potentially raising the total liability to ₹2.3 lakh crore, including interest, as reported by Bar and Bench.
To challenge this decision, as many as 40 online gaming companies filed legal petitions with the Supreme Court, opposing the 28% GST tax on bets placed on their platforms. Their primary challenge is against the retrospective nature of the tax, which has been applied to transactions dating back to August 2017, even though the tax rate was introduced only in October 2023.
Gaming companies also linked the ongoing case involving Karnataka High Court ruling, which had set aside a ₹21,000 crore GST show cause notice. The court held that online or electronic Rummy, as played on the gaming platform Gameskraft, did not qualify as a betting or gambling activity and was therefore not subject to such taxation.
Online Gaming Industry Hails The Move By SC
The industry has welcomed the stay decision. India’s leading gaming body, ‘E-Gaming Federation,” representing online rummy and poker operators, hailed the move as a pivotal step for the growth of skill-based gaming within India’s digital economy. The Supreme Court’s order, issued on Friday, provides significant relief to the sector.
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