SC Hearing on Online Gaming Taxation Nears Conclusion
The final week of hearings in the Supreme Court’s landmark case on online gaming taxation and state regulation has begun. The case, which involves major players like Gameskraft, centres on whether GST can be levied at 28% on full face value of bets and if states can also regulate online games of skill.
This verdict could reshape India’s ₹35,000 crore online gaming sector.
Why This Case Matters
GST at 28%: Is It Valid on Full Bet Value?
As per CBIC’s July 2023 amendment and Notification No. 29/2023-CT (Rate), GST is now levied at 28% on the entire amount paid or deposited to play online games, regardless of whether it’s a game of skill or chance.
The industry argues this is arbitrary and affects business viability, as the tax is charged on total deposit, not on platform fees or net revenue.
Key Legal Issue:
- Can Rule 31A of CGST Rules, meant for gambling and lotteries, be applied to games of skill?
States vs. Centre: Who Regulates Online Gaming?
States like Tamil Nadu and Karnataka argue that ‘betting and gambling’ are State List subjects under Entry 34 of List II (Seventh Schedule).
They also insist they must regulate online gaming apps—citing social concerns, addiction, and underage play.
However, the Centre asserts its power to tax under Article 246A and regulate digital platforms under Article 248 and the Information Technology Act.
Key Constitutional Question:
- Are state bans on games like rummy and poker valid if they are proven to be games of skill?
Snapshot: Gameskraft vs. Union of India
| Issue | Gameskraft Argument | Govt’s Stand |
|---|---|---|
| Nature of Game | Rummy is a game of skill, not chance | All online games attract same GST |
| Taxable Value | GST should apply only on platform fee | 28% on total bet amount |
| Rule 31A Relevance | Doesn’t apply to skill games | Applicable to all online games |
| Retrospective Demand | ₹21,000+ crore demand is unconstitutional | Valid under amended GST law |
Legal References
- CGST Act Section 15, Rule 31A – Valuation rules for lotteries, betting, gambling
- Notification No. 29/2023-CT (Rate) – Imposes 28% GST on face value
- Gameskraft HC Order (Karnataka, May 2023) – Ruled in favour of taxpayer
- SC Stayed HC ruling in Sept 2023, tagged with batch matters
Expert View: CAs Warn of Unintended Precedents
Many tax professionals believe if the Supreme Court upholds 28% GST on face value, it may lead to similar valuation demands across other industries like fantasy sports, casinos, or even real-money skill-based apps.
The biggest concern is revenue vs. viability—the Centre wants revenue certainty, while the industry wants fair valuation.
What to Expect This Week
- Constitution Bench to hear final arguments on taxation vs. regulation
- Key submissions expected from FICCI, AIGF, and state governments
- Final verdict may decide whether online gaming is a state-regulated service or a taxable e-commerce activity
Summary
Supreme Court’s online gaming case enters final week. Key issues: 28% GST on full bet value, whether states or Centre regulate games of skill. Gameskraft’s ₹21,000 crore demand hangs in balance.
FAQ
Q1. What is the current GST rate on online gaming?
28% on full bet amount, not just platform fee—effective from Oct 1, 2023.
Q2. What’s Gameskraft’s main legal challenge?
That their platform offers games of skill, not gambling, and Rule 31A should not apply.
Q3. Who regulates online gaming – states or Centre?
Both are asserting authority. SC will decide based on constitutional interpretation.
Q4. Is this verdict final?
It will be binding unless Parliament amends GST law again.
Closing CTA
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