Supreme Court Upholds Retroactive 28% GST Levy on Online Gaming Companies

Supreme Court Upholds GST Show Cause Notices Against Online Gaming Companies

The Supreme Court has delivered a significant blow to the real-money gaming industry in India, upholding Goods and Services Tax (GST) show cause notices issued to gaming companies related to a 28% levy on the full value of deposits made through their platforms. The apex court has also ruled that taxation on online gaming companies is constitutionally valid.

The Supreme Court's decision was made in response to appeals by Tamil Nadu and Karnataka, which had sought to ban online money games, even those that involve skill. The court allowed these appeals and set aside judgments by the Madras High Court and Karnataka High Court, which had struck down state laws banning or regulating online gaming with stakes.

The GST authorities have been directed to process the show cause notice as per law, and companies are free to respond to the notices. This move marks the latest blow to the real-money gaming industry, which has already been outlawed by the government's online gaming law.

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The dispute between the tax authorities and online gaming companies centered on the interpretation of how GST should be levied on RMG platforms. The tax authorities demanded 28 percent GST on the full face value of deposits, while platforms argued they should only pay tax on the commission they charge to host the tournament, also known as Gross Gaming Revenue (GGR). The GGR typically ranges between 5-15 percent of the deposits.

The tax authorities' demands were several times higher than the cumulative revenues earned by these companies, which would lead to the eventual shutdown of these companies. The Indian government enacted a new online gaming law, the Promotion and Regulation of Online Gaming Act (PROGA), in August 2025, which prohibits online money games where a user makes a deposit with the expectation of earning winnings on that deposit.

The rules formally came into effect from May 1, 2026, triggering a sudden collapse of the country's $3.5 billion real-money gaming industry. This has led to widespread cost-cutting, with companies laying off over 3,000 employees as revenues dried up and they scrambled to survive in the new reality.

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The Supreme Court had reserved its judgment on retrospective tax notices of nearly Rs 2.5 lakh crore issued against real-money gaming platforms over the past few years in August 2025. The court's decision has now been delivered, upholding the GST show cause notices and setting aside relief granted by the Karnataka High Court.