New Delhi: In a major setback for online gaming firms, the Supreme Court on Wednesday upheld the constitutional validity of the 28% goods and services tax (GST) levy on online gaming and rejected challenges against retrospective tax demands worth over ₹ 1.5 trillion.
The ruling is expected to have far-reaching implications for the sector, with lawyers representing gaming firms warning of widespread insolvencies, and raising questions over the constitutional validity of a central law banning online gaming, since the verdict treats it as betting and gambling, a state subject.
The verdict, delivered by a bench of Justice J.B. Pardiwala and Justice R. Mahadevan, dismissed a batch of petitions filed by online gaming companies, casinos, turf clubs and industry bodies challenging GST notices and the legal framework governing taxation of online gaming.
The petitioners - including Games24x7, Head Digital Works, Play Games24x7 Pvt. Ltd, Baazi Networks Pvt. Ltd and the E-Gaming Federation, among others - had challenged the tax demands issued by the Directorate General of GST Intelligence (DGGI), arguing that the 28% GST on online gaming should apply only prospectively, from 1 October 2023, after the amendments approved by the GST Council came into effect.
The government had argued that the amendments had merely clarified the existing legal position and did not introduce a fresh levy, which made the earlier tax demands valid. The Supreme Court accepted this position.
Pronouncing the verdict, the three-judge bench led by Justice Pardiwala held that online gaming, fantasy sports and similar real-money games involving pooled stakes and prize structures amounted to betting and gambling, and that such activities create "actionable claims" that are taxable under the GST framework.
The court also held that online gaming operators are not merely intermediaries facilitating transactions between users, but themselves constitute suppliers of actionable claims.
Rejecting one of the industry's central arguments, the bench ruled that GST cannot be restricted only to platform fees or gross gaming revenue. Instead, amounts staked by users constitute consideration and prize pools, and winnings and payouts cannot be excluded while determining taxable value.
Some lawyers in the sector have said Wednesday's verdict implicitly nullifies a ban imposed by the Centre on online gaming.
In August 2025, Parliament enacted the Promotion and Regulation of Online Gaming Act, prohibiting online money games involving monetary stakes. The law came into force earlier this year, and led to most ventures shutting down, or pivoting to new areas that are yet to generate significant revenue.
"The verdict issued Wednesday does appear to be based on assuming the real-money gaming sector to be the same as betting and gambling, which is a state matter. If that is so, then the law banning the sector should not stand valid," said a senior lawyer representing top online gaming firms in the case, requesting anonymity since his clients are currently considering a response.
The lawyer cited above said that the final copy of the judgement would give more clarity on whether the court has ruled in favour of 28% GST on the full value of every transaction, or 28% on the initial deposit.
"At any rate, both cases will add a massive tax liability to online gaming firms which do not even have a source of revenue today. This will certainly lead to insolvency filings," he added.
Most lawyers who represented the sector said that the industry is unlikely to see a turnaround even if the Centre's ban is overturned.
A second senior lawyer who also represented multiple gaming firms in the case told Mint that legal challenges to Wednesday's verdict, now in early rounds of discussions in the online gaming industry, include appealing to a larger bench of the Supreme Court, and adjudicating with the GST Council citing current status of business.
"What sets an unexpected precedent is that private investors of once-unicorn startups will now have to write off big-ticket investments," he said.
A third senior lawyer, who represented a top online gaming industry body, said nothing has been done so far to ban and block offshore gambling operators, "which makes this very targeted takedown of a once-thriving homegrown industry quite a shocking precedent to set".
A spokesperson for Dream11, formerly India's largest online gaming firm, declined to comment on the verdict. Mint's queries to Games24x7 and Gameskraft were not immediately answered.
What other lawyers are saying
Other legal experts agreed that the ruling could trigger insolvencies across the sector, given the scale of retrospective tax demands involved.
"In many cases, the online money gaming companies may themselves be forced to voluntarily declare insolvency. In other cases, the GST department, as operational creditors, may also end up moving NCLT for declaring online money gaming companies as insolvent," said Sudipta Bhattacharjee, partner at Khaitan & Co, who represented several online gaming and casino companies before the Supreme Court in the batch of matters.
"It is impossible for the companies to pay the tax liabilities that have been proposed by the GST authorities. While a copy of the judgment is awaited, companies will explore the option of approaching the GST Council for relief on the retrospective tax dues," said Jay Sayta, a technology and gaming lawyer.
"Prima facie there are no further legal recourses for the real-money gaming startups to seek, now that the Supreme Court has ruled in favour of the high taxation levy," said Rutuja Pol, partner at Ikigai Law. "The only thing that could give some leeway for how the startups can pay off these levies is that the respective GST bodies will have the authority to adjudicate on the dues."
According to Pankaj Goel, partner at CNK, a chartered accountant firm, the ruling does not automatically mean gaming companies must immediately pay the entire tax demand, as individual GST notices would still undergo adjudication. This would allow companies to challenge the quantum of demand, penalties and calculation methodology adopted by tax authorities.
How the dispute escalated
The dispute traces back to one of the biggest tax actions against India's online gaming sector. In 2022-23, the DGGI had issued show cause notices to several online gaming companies with tax demands totalling over ₹1.5 trillion, alleging gaming firms had underpaid GST by paying tax only on commissions and platform fees, instead of the entire face value of deposits, bets or entry amounts placed by users.
Gaming companies argued that they had merely facilitated skill-based games and retained only a platform fee, while prize pools belonged to users. They maintained that GST should apply only to gross gaming revenue, rather than the total deposits.
The dispute intensified after the GST Council in August 2023 amended the law to impose a uniform 28% GST on the "full face value" of bets, deposits and entry amounts in online gaming, casinos and horse racing with effect from 1 October 2023.
The industry maintained that the changes had created a fresh tax regime and, therefore, could not be retrospectively applied.
A ₹21,000-crore DGGI show cause notice to Gameskraft Technologies in September 2022 became the centre of the legal challenge. The notice was quashed by the Karnataka High Court, which held that games of skill could not be equated with betting and gambling, before the matter eventually reached the Supreme Court as part of the broader online gaming GST dispute.
Following multiple challenges across high courts, the Centre sought transfer of these matters to the Supreme Court, leading to consolidation of over 100 cases involving over 90 companies, casinos and turf clubs.
The bench heard arguments over nearly five months before reserving its judgment in August 2025.