The Supreme Court may pronounce its verdict on the constitutional validity of retrospective taxation on online gaming companies by late April, according to lawyers representing the firms. Legal experts say that if the Court annuls the retrospective tax, more than Rs 1 lakh crore worth of tax demands will be quashed; but if the ruling is in favour of tax authorities – the process of recovery may lead to liquidation of many gaming companies.
The finance ministry in 2025 had informed Parliament that during July 2017 to January 2025, 91 show-cause notices were issued to online gaming companies for non-payment of tax liabilities – amounting to Rs 1.44 lakh crore.
Moreover, the Supreme Court is also hearing a separate set of petitions that have challenged the Promotion and Regulation of Online Gaming Act (PROGA), 2025, which imposes a blanket-ban on all gaming platforms involving monetary stakes. Experts argue that if in the retrospective taxation ruling – the Court rules that ‘games of skill’ and ‘games of chance’ are separate and can’t be equated, it may have an indirect impact on the case challenging PROGA as well.
PROGA has banned online gaming in all forms – irrespective of whether they are games of skill or games of chance. If Supreme Court makes a distinction between these two categories – which also existed prior to 2023 in GST laws – then a blanket ban on all forms on online gaming (involving money) may seem disproportionate, say legal experts.
Separate Cases
Experts, however, caution that the two cases are separate.
“These are two separate matters, with no direct overlap,” an tax expert said.
The hearing in the case challenging the online gaming ban has not yet concluded. While, the hearing in the petitions challenging the retrospective tax concluded in September 2025.
The retrospective taxation case
In the latter case, over 30 online gaming companies have challenged Rs 1-lakh-crore worth of tax notices. These notices allege non-payment of tax liability due to misclassification of these games by these firms.
The notices allege that online gaming firms deliberately didn’t pay 28 percent tax on “full-face value” of bets on both games of skill and chance – as the law was always clear on this aspect.
Gaming companies, however, contend that the law (as it stood prior to October 2023) allowed for 18 percent tax to be levied on games of skill, and 28 percent on games of chance. Also, they argue 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 had issued a notification “clarifying” that a 28% GST is applicable on online gaming, on the full-face value of bets. This has been a contentious point for the industry, as it significantly increases the tax burden compared to previous models. For instance, if you deposit Rs. 1,000, and GST is applied at 28% on the full-face value of the deposit (which is then used for betting), Rs. 280 goes to GST, leaving only Rs. 720 for gameplay.
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).
Implication of the verdict
In case Supreme Court upholds the claims of the GST department, any attempt at recovering such massive GST attempts may not yield much since the GST amounts demanded are several times higher than cumulative revenues earned by these companies, as per experts.
“In such a scenario, 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 tax 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,” said the advocate who is representing Gameskraft, which has appealed against a Rs 21,000-crore GST notice.
Section 11 A grants the government the power to waive unpaid taxes if the non-payment was the result of a “prevalent practice” across an entire industry – which is the case in this matter.
However, if no such exemption is given, it would lead to various recovery actions contemplated under the GST laws – since most of these companies have either shut down or pivoted to some other area of business. Any attempt to recover may ultimately lead to liquidation of these companies, experts say.
Further, since most of these companies are private limited companies, it is pertinent to keep in mind that under Section 89 of the CGST Act, 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, they say.
“Irrespective of the outcome, the Court may not levy 100% penalties or affirm demands based on extended period of limitation, considering the interpretational nature of the dispute at hand. As such, we may expect the demands to get reduced to that extent even if the outcome goes against the taxpayers. Companies may also explore remedies before the Court to permit them to discharge the liabilities in a staggered manner,” he said.
