The GST Controversy: What’s Going On?
Online gaming in India has been growing rapidly, providing entertainment to millions and creating a flourishing industry. However, a major roadblock has emerged in the form of 28% GST, which the government wants to apply to online gaming. [1]But the real question is—should gaming be treated the same as gambling? That’s exactly what’s being debated in the Supreme Court.
The controversy started when tax authorities claimed that online gaming should be taxed at 28% on the entire deposit made by players, rather than just the platform’s earnings.[2] This means that whenever a player deposits money to play, a huge chunk would go to taxes, making it a lot more expensive for both players and gaming companies.
Gameskraft, one of the companies at the center of this issue, won a case in the Karnataka High Court, which ruled that skill-based games shouldn’t be taxed like gambling.[3] However, the government challenged this in the Supreme Court, leading to further uncertainty for the industry. If the court sides with tax authorities, it could significantly impact the gaming ecosystem in India, affecting companies, players, and investors. Many experts argue that online games requiring skill should be distinguished from gambling activities, and overtaxing the industry could drive businesses and players to unregulated platforms.[4]
Ultimately, the final decision will determine whether gaming in India continues to grow or faces a major setback due to high taxation.
What This Means for the Gaming Industry
A 28% GST on the total deposits made by players could change the entire landscape of the online gaming industry in India.[5] For businesses, this tax policy means higher operating costs, lower profitability, and a serious risk of losing players who might not be able to afford increased gaming expenses. Smaller startups, which have been fueling the sector with innovative games, may struggle to survive in such a heavy taxation environment. Some companies may even consider relocating to more tax-friendly countries, leading to job losses and a decline in investments in the Indian market.[6]
Beyond business concerns, players themselves will feel the burden. If companies start passing on these costs to users, gaming will become significantly more expensive.[7] Higher entry fees and reduced prize pools could discourage participation, pushing many gamers away from their favorite platforms. This may also lead to a shift toward unregulated gaming platforms, which come with their own risks, including lack of consumer protection, potential fraud, and unfair gaming practices.[8]
Many countries around the world recognize the difference between games of skill and games of chance and tax them accordingly.[9] If India follows suit, the gaming industry can continue to thrive, contributing to the economy and generating employment. The ideal solution would be a fair taxation policy that ensures government revenue without crippling an industry that has immense growth potential.
The Debate: Skill-Based Gaming vs. Gambling
At the heart of this tax debate lies a crucial distinction: Are online games skill-based, or are they just another form of gambling? The government argues that any game involving money should be taxed at the highest slab, similar to betting and gambling.[10] However, this ignores the fact that games like Rummy, Poker, and Fantasy Sports rely heavily on strategy, decision-making, and experience rather than pure luck.
Legal precedents in India have previously supported this view. Courts have ruled that games involving a preponderance of skill (where skill is more dominant than chance) should not be treated as gambling. For instance, in the case of Rummy, the Supreme Court had earlier observed that the game requires considerable skill in memory, strategy, and judgment, distinguishing it from games of pure luck like lotteries or slot machines.[11]
Despite this, the government continues to push for a blanket 28% tax, arguing that the mere involvement of money qualifies these games as gambling. But applying the same taxation rules to a chess tournament and a casino slot machine doesn’t seem logical, does it? If India wants to encourage a growing digital economy and innovation in gaming, it needs to recognize this crucial difference and frame laws accordingly.
What Happens Next?
The future of online gaming in India now depends on how the Supreme Court rules on this issue. If it upholds the Karnataka High Court’s decision, skill-based games will have a fair chance to thrive without being burdened by excessive taxation. This would provide clarity to investors, businesses, and gamers, ensuring a regulated yet encouraging environment for the industry.
However, if the court decides in favor of the 28% GST on total deposits, it could spell trouble for the gaming industry. Many gaming companies will have to rethink their business models, potentially reducing prize pools, increasing platform fees, or even shutting down operations in India. Players, too, will face higher costs, limited choices, and an overall decline in gaming experiences.
Gaming isn’t just entertainment; it’s also an economic driver, creating jobs, attracting investments, and fostering innovation. While taxation is essential, an unfair burden could stifle the industry’s potential. Hopefully, the final decision will reflect a balanced approach that benefits both the government and the gaming community, ensuring long-term growth and stability.
[1] Directorate General of Goods and Services Tax Intelligence v. Gameskraft Techs. Pvt. Ltd., SLP (C) No. 19366-19369/2023 (India).
[2] Id.
[3] Gameskraft Techs. Pvt. Ltd. v. Directorate Gen. of Goods & Servs. Tax Intelligence, W.P. No. 19570/2022 (Karnataka HC, India, May 11, 2023).
[4] Id.
[5] Central Goods and Services Tax Act, 2017, No. 12, Acts of Parliament, 2017 (India).
[6] Economic Times, 28% GST on Online Gaming: Industry Concerns and Financial Impact (2024).
[7] Live Law, Skill-Based Gaming vs. Gambling: Legal Standpoints (2023).
[8] NITI Aayog, Report on Online Gaming Regulation in India (2021).
[9] Directorate General of Goods and Services Tax Intelligence v. Gameskraft Techs. Pvt. Ltd., SLP (C) No. 19366-19369/2023 (India).
[10] Id.
[11] Id.
Author: Siddhesh Munghate is a 6th Semester BBA LLB Student at Alliance University
