Online skill games not gambling: GST battle heats up in India's apex court
India’s Supreme Court is currently hearing a major legal challenge brought by the online gaming industry against the government’s decision to impose a 28 percent Goods and Services Tax (GST) on participation fees. Representing the E-Gaming Federation (EGF), senior advocate Harish Salve argued that tax authorities have incorrectly categorised skill-based online games—such as rummy and fantasy sports—as gambling. With a potential financial impact of ₹2.5 lakh crore ($30.5 billion), this case marks one of the most significant tax disputes in India’s digital economy.
Question of taxable goods and actionable claims
On Tuesday, appearing before a division bench of Justices JB Pardiwala and R. Mahadevan, Salve questioned whether participation fees in online games qualify as “actionable claims” under the GST regime. He argued that these games do not involve any transfer of goods or rights that can be taxed in this category.
Salve referred to the 2006 SC decision in Sunrise Associates, where the court defined actionable claims in the context of lotteries. He maintained that the same logic cannot apply to games of skill. According to him, online platforms are facilitators, not suppliers of any transferable claims.
Challenge to GST on full entry fee
One of the key issues raised was the application of Rule 31A of the CGST Rules. This rule mandates that GST be charged on the full face value of bets placed. Salve pointed out that under the current interpretation, operators are taxed at 28 percent on the entire player entry pool, not just on their actual earnings.
, it was highlighted that operators generally retain only 10 percent of the entry fee as platform fee, which already includes 18 percent GST. Applying 28 percent on the full amount increases the tax burden drastically—more than double the operator’s gross revenue.
Operators not part of prize pool
Salve further emphasised that online gaming operators do not participate in the games or control the prize money. The prize pool is funded entirely by players, and winnings are directly credited to the players’ wallets. The operators earn a fixed fee for providing the gaming platform and hold the deposits in escrow accounts.
“The essential feature of these games is that a player competes against other players. The operator merely provides and manages the platform,” Salve stated.
Constitutional questions raised
The petition also raised concerns over the constitutional validity of taxing skill-based games under the gambling category. Salve argued that following the 101st Constitutional Amendment, the union government no longer holds power under Entry 62 of the State List to tax betting and gambling.
He described Rule 31A as “a colourable exercise of legislative power” and said that it tries to reclassify the nature of tax without proper legal backing.
Other important arguments
Senior advocate Rakesh Dwivedi argued that the definition of “supply” under Section 7 of the CGST Act does not cover the entire player pool as taxable. He said Rule 31A was originally framed for physical betting venues like race clubs and cannot be extended to digital platforms without legislative clarity.
Abhishek Manu Singhvi underlined that the courts have long recognised the difference between games of skill and chance. Citing rulings in K. Satyanarayana and RMD Chamarbaugwala, he asserted that games like fantasy sports and rummy are games of skill and cannot be taxed as gambling.
