The Supreme Court on May 27 upheld the constitutional validity of the 28 percent GST levy on online gaming transactions, as well as the government’s retrospective imposition of the levy on the firms. The court backed the retrospective notices – which are seeking more than Rs 1 lakh crore in taxes for pre-October-2023 transactions.
The online gaming industry had appealed these notices in the court on legal and constitutional grounds even as they expressed their inability to pay these dues, since their revenues were far lower than the tax demands.
Moneycontrol looks at the options that are available with the industry now to pay the GST liabilities, as most of them have shut operations or pivoted to a different model of generating revenue post the ban imposed by Centre on real money gaming.
Why are online gaming firms in the dock?
The Directorate General of GST Intelligence (DGGI) had sent these notices as prior to October 1 2023, online gaming companies paid 18 percent GST on the platform fee, or commission. The DGGI claimed that the firms deliberately didn’t pay 28 percent tax on “full-face value” of bets on both games of skill and chance, despite the law being clear on this aspect.
Gaming companies, however, contended that the law (as it stood prior to October 2023) allowed 18 percent tax to be levied on games of skill, and 28 percent on games of chance. Also, they argued that the GST was applicable on “actual transaction value”, rather than the “full face value of bets”.
Full face value of bets refers to the entire amount of money (or its equivalent, like chips or tokens) that a player wagers in a game, regardless of whether it’s a game of skill or chance. Actual transaction value means revenue earned by the online gaming platform for providing services. It’s essentially the commission, or service fee, the platform takes from the total money involved in a game.
In October 2023, the central government issued a notification “clarifying” that 28% GST is applicable on online gaming transactions, and applicable on the full-face value of bets. This was been a contentious point for the industry, as it significantly increased the tax burden compared to previous models.
Online gaming companies say that GST should only be levied on the “actual transaction value” (their commission/revenue), as that’s the true “supply of service” they provide. The 2023 clarification also removed the distinction between “games of skill” and “games of chance” (betting/gambling).
Can the firms pay Rs 1 lakh crore GST?
Tax experts and lawyers representing the firms say that the ruling may not practically yield much for GST authorities, as the complete ban on online money gaming has resulted in most companies either shutting down or pivoting to some other area of business.
“Thus, any attempt at recovering such massive GST attempts may not yield any results since the GST amounts demanded are several times higher than cumulative revenues ever earned by these companies,” an tax expert said who represented Gameskraft. The company had appealed to the top court against a Rs 21,000-crore GST notice it had received in 2022.
A 2025 report by Interactive Entertainment and Innovation Council (IEIC), and WinZo had noted that the actual revenue generated by online gaming companies in 2024 was Rs 31,000-32,000 crore.
According to experts, the authorities may take various recovery actions contemplated under the GST laws. And since most of these companies have either shut down or pivoted to some other area of business, any attempt to recover the taxes demanded may ultimately lead to liquidation of these companies, they say.
Also, since most of these companies are private limited companies, individuals who were directors in these companies in the pre-October 2023 period could personally be exposed to these massive GST liabilities in case recovery is not possible from these companies, the experts note.
“It would be ideal if the government invokes its powers under Section 11A of the CGST Act to grant exemption and regularize the generally prevalent GST position adopted by everyone in this sector till September 2023. Such an action will avoid a lot of unnecessary litigation across India and would also help investor sentiment in the current uncertain geopolitical climate,” he noted.
What is Section 11A of CGST Act?
Section 11A of CGST Act gives the central government, on the recommendation of the GST Council, the specific power to waive off past GST liabilities of the industry for a particular period if it’s satisfied that the non-payment or under-payment of taxes was due to a “generally prevalent trade practice.”
This particular clause was introduced in the law through the Finance Act in 2024. It was brought in post representation from the online gaming industry, which sought relief from the Centre over the past tax demands.
Section 11A overrides all other standard recovery, demand, and penalty provisions in the GST law. To invoke this section, the GST Council must be satisfied that a specific tax-shortfall or non-payment occurred because of a widely accepted, prevalent trade practice across a sector, rather than deliberate evasion by an individual firm.
A senior official in the finance ministry, however, told Moneycontrol that “there is no discussion at the moment on invoking this (Section 11A) clause. But the government is open to engaging with the industry.”
What do experts say?
Another tax expert said that the ruling may have settled the constitutional validity of the GST levy on online gaming, but the issue of retrospective application continues to raise serious jurisprudential concerns. “In taxation law, legality alone does not always answer the deeper test of fairness and certainty. For nearly half a decade, the industry operated under a disclosed and tax-paid model where GST was discharged on platform fee, a position that was neither clandestine nor artificially concealed from authorities.”
The 2023 amendments specifically introduced the framework for taxation of ‘online money gaming’ and valuation on the full-face value basis. “Once Parliament itself found it necessary to legislatively redefine and clarify the levy architecture, it inevitably strengthens the argument that interpretational ambiguity existed in the pre-amendment era,” he said.
Some say that Section 11A of the CGST Act cannot be viewed as a statutory shortcut to wipe out retrospective penalties on online gaming companies. The provision, borrowed from the old Excise and Customs Act, was never conceived as a blanket amnesty or a mechanism to retrospectively nullify penalties in contested tax disputes, they say.
“More importantly, the present situation is distinct because the Government itself has consistently litigated and defended the taxability position before courts, and the Supreme Court has now upheld the levy framework. In such a scenario, it may be difficult for the Government to simultaneously argue that the tax was legally recoverable and yet entirely forgo it through an expansive use of Section 11A,” another tax expert said.
