Taxing Skill Like Chance : India's GST Gaming Gamble

Introduction : India's online gaming industry has evolved from a mere pastime to a digital economy. This economy was valued at INR 232 billion in 2024 and is estimated to reach INR 316 billion by 2027. For decades, the Indian Judicial system has built a firm line between games of skill, where a player's capability determines the end result, where in games of chance, luck decides the end result. The Goods and Services Tax Amendment Act 2023 imposed 28% tax on the full face value of online betting platforms. As a consequence, skill based online gaming is now covered under the same tax bracket as gambling. This article focuses on analysing the current GST framework, which requires legislative reconsideration, since it overlooks settled judicial precedent and puts the online gaming industry at risk.

Legal Evolution of Online Gaming

The Constitution grants power to the states to impose tax on betting and gambling by virtue of Entry 34 of the State List. Courts have consistently interpreted this entry narrowly to restrict its objects to those activities in which chance governs. In State of Andhra Pradesh v. Satyanarayana , AIR 1968 SC 1472, the Supreme Court observed that rummy is a game of skill, requiring memory and judgment in the discarding of cards. Similarly, in K.R. Lakshmanan v. State of Tamil Nadu, the Supreme Court used the expression “a game of mere skill” to indicate a preponderance of skill over chance and held horse racing to be a legitimate business activity protected under Article 19(1)(g).

Recently, in Junglee Games v. State of Tamil Nadu, 2021 and All India Gaming Federation v. State of Karnataka , 2022, the Supreme Court has held that the mere fact that a game is played over an electronic medium does not make it a game of chance. By virtue of these decisions, skill based games have been recognized as legitimate commercial activities, distinct from gambling, which is an extra commercium, and the state is empowered to tax the latter.

Understanding the GST Framework

Under the previous GST rules, gaming platforms were taxed as service providers. These platforms had to pay 18% tax on the commission or Gross Gaming Revenue, that is, the value they provided as an intermediary. As per the 2023 amendment, the category of ‘online money gaming’ was created, with a 28% tax on the sum of money deposited by the users. It is the tax on the flow of money through the system, not the value provided by the gaming platform. As a consequence, for several companies, the taxes they paid exceed the revenues earned, which forced them to either reduce the costs or offset the losses by the users. This leads to lower engagement and further results in the loss of confidence in Indian gaming startups.

Constitutional and Legal Analysis

The 28% regime breaches Article 14 since a reasonable classification should be made based on legitimate aims. The fact that skill based platforms fall under the same umbrella as gambling has no reasonable justification, as placing them in the same category negates their differences. Such an assertion is completely arbitrary and can be reasonably challenged on the grounds of lack of any rational basis. Additionally, a similar argument can be made on the basis of Article 19(1)(g) which guarantees the rights of people to lead any lawful trade or profession. A tax that would make one’s livelihood impossible to sustain is an unreasonable impediment to one’s rights, as opposed to a reasonable tax that only moderately affects one’s gains.

The violation of Article 19 is even more apparent when considering the doctrine of proportionality that is layered on fundamental rights by the judiciary. In essence, any restrictions to any fundamental rights should be limited to what is necessary in a given case. The government is perfectly within its rights to impose a tax to fund the state and reduce the harms associated with gambling. Therefore, taxation of Gross Gaming Revenue is entirely justified, as this only moderately affects one’s earnings. However, taxation of the face value of the bets goes beyond that, since it also includes amounts that have not been processed by the gambling platforms.

Policy and Economic Implications

The government stands firm on imposing 28% tax that is levied on the entire value is simple to administer and spares the settlement of the loop that can be exploited by tax evaders. The fact that online money gaming has increased risks of addiction makes it even more reasonable to impose a higher tax. Industry lobbyists, however, argue that a larger cut means less room for profit essential for encouraging innovation in the sector and fueling job creation in the country. The online gaming economy has been growing rapidly in India before its recent demonetization and needed an economic lifeline to continue its positive trajectory. The 28% tax, as proposed, is a hurdle to growth and will see many operators shifting their operations to other countries not bound by Indian laws, an action that will result in reduced tax revenues and the creation of a less accountable and regulated industry. The Promotion and Regulation of Online Gaming Act, 2025, which aims to create a safer and more sustainable framework for legal online gaming, is bound to fail if operators will be forced to make these crippling payments.

Comparative Perspective

India’s position is completely different from that in other countries, which have already legalized and regulated gambling. First of all, such countries as the United Kingdom have gambling operators at a significant distance from the state. For example, the Gambling Commission of the United Kingdom, which is the state regulator, takes taxes from companies on a Gross Gaming Revenue basis, not on the size of all bets. Also, in the U.S., state governments tax revenues from legalized gambling at a rate between 8-16%. The principle behind these examples is that the state does not want to take more than necessary, as such policies can turn off the population from gambling. This is where the mistake was made in India, which led to the loss of a competitive advantage.

Conclusion

The 28% GST regime that has been proposed by the government highlights a conflict between the revenue and sovereignty interests of the state, and the constitutionally protected rights of legitimate business. The government does have the right to impose taxes on this sector, but it has to ensure that it does not cross the line that has been drawn by the Indian judiciary between skill and chance. The regime should be changed because in its current form, it can be challenged in court as unreasonable and excessive. A viable solution would be to impose taxes on the margins generated by the platforms rather than the total amount of user deposits, thus balancing the fiscal needs of the state and the developmental prospects of India’s gaming industry.

Author: Pallavi Sabat in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney

References

1. State of Andhra Pradesh v. Satyanarayana, AIR 1968 SC 1472.

2. K.R. Lakshmanan v. State of Tamil Nadu, 1996 SCC (2) 226.

3. Junglee Games India Pvt. Ltd. v. State of Tamil Nadu, 2021.

4. All India Gaming Federation v. State of Karnataka, 2022.

5. Goods and Services Tax (Amendment) Act, 2023.

6. The Promotion and Regulation of Online Gaming Act, 2025.