The Supreme Court of India recently stayed the goods and services tax (GST) proceedings against 49 online gaming companies, temporarily halting retrospective tax demand notices based on the full-face value of bets placed on their platforms. Speaking to SiGMA News, chartered accountant and sports enthusiast Bansal Shah described the move as pivotal.

If the 28 percent tax on the gross amount is upheld, it could severely impact the gaming industry, leading to reduced player participation, falling revenues, and consolidation among smaller firms,” Shah warned.

Landmark GST dispute

The controversy centres around show-cause notices amounting to ₹91,684 crore (€1.02 billion) issued by India’s GST department to online gaming firms. Including casinos in the tax dispute raises the total demand to ₹1,08,505 crore (€1.20 billion). Effective 1 October 2023, the government introduced a 28 percent GST on the full-face value of bets, replacing the earlier 18 percent rate on Gross Gaming Revenue (GGR) for skill-based games.

The GST Council’s July 2023 decision to uniformly tax all online gaming, whether skill-based or chance-based, under the 28 percent slab has faced resistance from the industry. Also, overseas gaming platforms were required to register in India, tightening compliance regulations.

Legal challenges and industry impact

As for the retrospective tax demands, corporate lawyer Divya Sharma told SiGMA News that this was troublesome. “The valuation method adopted by the tax authorities is unreasonable,” Sharma said. “The full-face value of bets does not belong to gaming companies but is redistributed among players. Additionally, the imposition of a 28 percent GST disregards the historical distinction between games of skill and games of chance, which has long guided regulatory frameworks.”

Sharma identified key legal challenges for gaming firms, including contesting the retrospective application of the tax and reasserting constitutional protections for skill-based games.

Meanwhile, Shah warned of broader industry repercussions. “Higher taxes could deter players, shrink revenues, and hurt investor confidence. Smaller firms may be forced to sell or shut down, and the overall growth of the gaming sector could stall,” he said.

Record tax demands

The GST dispute escalated in December 2023 when the Rajya Sabha, the upper house of the Indian Parliament, disclosed that 71 show-cause notices, amounting to ₹1.12 trillion (€12.43 billion), had been issued to online gaming firms for the fiscal year (FY) 2022-23 and part of FY 2023-24. Officials said these measures were necessary to prevent revenue leakage and enhance compliance.

Consolidated legal battle

Earlier this month, the Supreme Court has further consolidated 27 petitions challenging the GST Council’s decision, grouping together cases that have been filed across nine high courts.

The Supreme Court’s ruling, expected after the next hearing on 18 March 2025, will be pivotal in determining the future of India’s online gaming industry. Stakeholders are watching closely, as the verdict could shape not only tax policies but also the growth of this emerging sector.