SC upholds 28% GST on online gaming and betting

New Delhi: The Supreme Court on Wednesday upheld the constitutional validity of Goods and Services Tax (GST) levied on online gaming activities, including fantasy sports.

The top court upheld the validity of laws enacted by the Tamil Nadu and Karnataka governments banning online games played for stakes, including games of skill such as rummy and poker.

The SC rejected challenges against the taxation of actionable claims arising from betting and gambling transactions.

A bench of Justices J B Pardiwala and R Mahadevan ruled that organised online gaming involving pooled stakes and contingent outcomes qualifies as betting and gambling for the purpose of GST, even if the underlying games have elements of skill.

The court held that once participants stake money or money’s worth on uncertain future outcomes, the activity acquires the character of betting and gambling under the GST framework, irrespective of the degree of skill involved.

“Online gaming activities, including fantasy sports and other games played on digital platforms, involving staking upon uncertain outcomes, constitute betting and gambling for the purpose of GST framework,” the court ruled.

Justice R Mahadevan, pronouncing the judgment, declared, “The levy of GST on the supply of actionable claims arising from betting and gambling is constitutionally valid and does not transgress Articles 366(12) and 366(12A) of the Constitution.”

The court clarified that the tax is levied on the taxable supply of actionable claims and not directly on the act of betting or gambling.

It emphasised that mere commercial hardship or higher tax incidence cannot render a fiscal law unconstitutional.

The bench held that online gaming operators are not mere intermediaries facilitating transactions between players but are themselves suppliers of actionable claims.

The amounts staked by participants constitute consideration for the supply of such actionable claims, making them liable to GST, it said.

The ruling comes in the backdrop of a major dispute over the valuation of supplies in online real-money gaming. Before the 2023 amendment to the CGST Act, platforms paid 18 per cent GST on their commission (Gross Gaming Revenue).

Following the amendment, the government imposed 28 per cent GST on the full face value of deposits or bets placed by users.

Gaming companies contended that skill-based games such as rummy, poker and fantasy sports should not be treated as betting or gambling.

The court, however, ruled that the presence of stakes on uncertain outcomes brings them within the GST net as betting and gambling.

The decision is expected to have far-reaching implications for the online gaming industry, where cumulative tax demands running into over Rs 1 lakh crore had been issued by authorities.