The future of India’s online gaming sector hangs in balance as the Supreme Court hears the Centre’s arguments on taxing online games played with stakes. The hearing, currently underway, could determine the legality and tax structure for skill-based and chance-based games alike.
As per today’s hearing in the Supreme Court, the Union government has stated that any game involving money amounts to gambling. This includes skill-based games when played for stakes. Additional Solicitor General N. Venkataraman, representing the Centre laid out some key principles terming them the “seven sutras” of gambling before a division bench led by Justices JB Pardiwala and R. Mahadevan.
He argued that financial stakes, not the nature of the game, define gambling. “A game of dice leads to a game of vice,” he told the court. The government maintained that outcomes involving uncertain results qualify as speculative and therefore fall under gambling.
The seven key principles were presented in a consolidated argument:
There is no gambling if no stakes are involved, whether the game is based on skill or chance.
Gambling arises once stakes are involved, regardless of the game’s nature.
Even a game of chance involving a competition fee qualifies as gambling.
A game of skill is not gambling by itself.
When played with stakes, a game of skill becomes gambling.
This does not reclassify the game into one of chance.
Legal protections offered by some states to skill games with stakes only exist because these games are otherwise considered gambling.
Venkatraman explained, “Games of skill played with stakes will not cease to be gambling merely because of a protection given from penal consequences.”
He cited judicial rulings like the Satyanarayana, RMDC, and Lakshmanan cases. Using an example involving Lionel Messi, he stated that “the dissection of game of chance and skill gets obliterated after one puts a stake on it.”
He further clarified that the government’s position on horse racing. While horse racing is a game of skill, betting on it outside a licensed racecourse becomes gambling.
He added that online gaming platforms are not passive hosts. “They facilitate the entire flow of money,” through features like cash-in and cash-out systems and setting in-house game rules.
The Directorate General of GST Intelligence (DGGI) argued that 71 online gaming companies and casinos received tax evasion notices. These companies allegedly applied an 18% GST rate instead of 28%. The total claimed tax evasion stands at ₹1.12 lakh crore.
The government clarified its stand on GST, insisting that skill and chance distinctions do not apply in taxation. The GST Council’s 2023 amendment made 28% GST applicable on full bet value starting October 1.
However, companies contest this rate, especially its retrospective application from July 2017. They argue that the tax should only apply to platform fees, not the entire stake amount.
An tax expert stated that “The gaming industry has been paying GST at 18%.” She added, “Tax authorities now demand GST at 28% on the full face value.” She criticized the inclusion of winnings in taxable turnover, stating, “Such award money is not accrued to gaming platforms.” She also raised concerns about changing game classification from services to actionable claims. She stated, “It confronts the scheme of GST itself.”
This case holds massive implications for India’s online gaming industry, which has seen significant growth in recent years. Singh warned that higher taxes and uncertain rules have already reduced player participation and company revenues.
Proceedings in the Supreme Court are scheduled to go on until May 9.
