“Decoding the GST Debate: Skill Gaming in the Crosshairs”
As India's digital economy continues to evolve, the battle over how to tax online gaming has taken the center stage. At the heart of the controversy lies the government's decision to impose a flat 28% GST (Goods and Services Tax) on the entire face value of transactions within online gaming platforms. This has led to heated debates, courtroom battles, and widespread confusion, particularly over how to distinguish skill gaming from gambling and betting.
Trouble in Retrospect
The most prominent reason behind the ongoing Supreme Court hearing is the retrospective tax demand by the GST authorities. Until 2022, fantasy sports and skill gaming platforms were paying 18 % GST, and that too on the commission or the platform fee they collected from the players – without any demur from the GST authorities. However, from 2022, GST authorities started demanding GST at 28% on the entire amount of monies staked by players on the platform on the basis of Rule 31A (1), (2) and (3) of CGST Rules – retrospectively from July 2017. Interestingly, GST laws were amended substantively with effect from October 2023 to which resulted in online real money gaming being put in the same category as betting and gambling, thus classifying it as a supply of “actionable claim”. And to make matters worse, the GST authorities have argued that these substantive amendments are merely clarificatory thereby digging-in on their retrospective GST demand from even before October 2023. Naturally, the online gaming companies are right in calling out this unfair Retrospective Tax. Seeing this development as a one-size-fits-all approach that fails to differentiate between games of skill and games of chance, many industry stakeholders are fighting a legal battle with the GST authorities on this unkind cut.
Rule 31, meant to determine the value of supply only in certain specific transactions of betting and gambling, is now being invoked in the case of online gaming platforms. However, the industry argues that Rule 31 and Rule 31A (3) are ill-fitted for skill gaming, which involves cognitive engagement and strategy rather than mere luck.
Skill vs Chance: The Crux of the Matter
The classification of games into skill-based and chance-based isn’t new. Indian courts have repeatedly held that games like rummy, fantasy and poker, fall under the category of “games of skill.” The Supreme Court and High Courts of various states have opined that skill gaming cannot be equated with gambling or betting.
Despite these rulings, the latest interpretation under GST continues to group rummy, poker, and other skill-based online gaming formats under gambling, simply because they involve monetary stakes. This blanket treatment disregards years of legal precedent distinguishing skill from chance.
Actionable Claim: A Question of Fit
One of the most controversial aspects of the current GST regime is the classification of online gaming as involving supply of an actionable claim. Legally, an actionable claim pertains to debts or beneficial interest in movable property not in possession. Traditionally, this has been applied only to lottery.
Industry leaders argue that when users participate in skill gaming like rummy or poker, they are engaging in a competitive, skill-based contest—not claiming any pre-existing right. Applying Rule 31A (3) to such gaming activities is seen as a distortion of the actionable claim definition, leading to unnecessary tax burdens and legal uncertainty.
The Supreme Court Case: A Turning Point?
One of the ongoing legal tussles between India’s leading online gaming companies and the GST authorities could well set a precedent for the entire industry. Arguing that their platform operates games of skill and does not fall under Rule 31 or 31A (3), these companies have maintained that GST should be levied only on the platform’s commission, not on the full-face value.
The companies also assert that games of skill, such as rummy and poker, do not generate any actionable claim. Therefore, clubbing them with gambling and betting not only violates constitutional principles but also penalizes legitimate businesses.
Why Rummy and Poker Matter
Rummy and poker have emerged as test cases for defining what constitutes skill gaming. While rummy has received judicial backing as a game of skill, poker’s status remains contested in some states. Regardless, both games require significant cognitive ability, pattern recognition, and strategy.
Online platforms argue that these games cannot be treated on par with pure games of chance, such as roulette. The misclassification under GST not only affects player perception but also the platform’s viability.
Betting, Gambling, and Public Perception
One of the key challenges the industry faces is the lingering perception that any real-money online gaming is equivalent to gambling. This has led to regulatory frameworks that fail to distinguish skill gaming from outright betting and gambling. Consequently, GST authorities tend to apply the harshest tax slabs to all such formats, ignoring the nuances.
However, legal experts point out that betting and gambling are inherently based on chance, while skill gaming involves measurable performance. Conflating the two under Rule 31 or Rule 31A (3) dilutes the legal understanding and creates ambiguity for stakeholders and is constitutionally untenable.
State-Level Regulation and the Way Forward
Some states, like Karnataka and Tamil Nadu, are taking proactive steps to create regulatory clarity. Karnataka’s proposed Online Gaming and Betting Regulatory Authority aims to license skill gaming platforms while banning games of chance. Tamil Nadu, after legal setbacks, is also reconsidering its gaming laws to differentiate more clearly between skill and chance.
These state-level initiatives are crucial for building a stable framework for online gaming in India. If harmonized with the central GST policy, they could offer a pathway to protect both consumers and legitimate platforms.
A Call for a Nuanced Tax Policy
For India’s burgeoning online gaming sector to thrive, GST needs a more nuanced approach. Applying Rule 31 and Rule 31A (3) without acknowledging the skill vs chance distinction undermines the constitutional right to trade and profession, particularly for skill-based platforms.
A fair GST structure would tax platform revenue, not user deposits. This model is already in practice in several jurisdictions around the world and could serve as a blueprint for India.
Conclusion
The fight over GST in the online gaming sector is far from over. As legal proceedings unfold and the government reevaluates its approach, one thing remains clear: India’s online gaming future hinges on a clear, rational, and skill-based regulatory framework. It’s time the law caught up with the digital age—where skill gaming is no longer a pastime, but a profession.
