Tax Liability Looms Over Online Gaming Companies Exceeding ₹1 Lakh Crore

Supreme Court Set to Deliver Verdict on Retrospective Taxation of Online Gaming Companies

The Supreme Court is expected to deliver its verdict on the constitutional validity of retrospective taxation of online gaming companies by late April, according to lawyers representing the firms. If the Court rules in favor of the tax authorities, the process of recovery may lead to the liquidation of many gaming companies, with tax demands of over Rs 1 lakh crore at stake.

The finance ministry informed Parliament in 2025 that between July 2017 and 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. The Supreme Court is also hearing a separate set of petitions challenging the Promotion and Regulation of Online Gaming Act (PROGA), 2025, which imposes a blanket ban on all gaming platforms involving monetary stakes.

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Experts argue that if the Supreme Court rules that 'games of skill' and 'games of chance' are separate and cannot 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 the 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 of online gaming may seem disproportionate, say legal experts.

The retrospective taxation case involves over 30 online gaming companies that 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 did not pay 28 percent tax on the "full-face value" of bets on both games of skill and chance, as the law was always clear on this aspect.

However, gaming companies 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. They also argue that the GST was applicable on "actual transaction value," rather than the "full face value of bets." The 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.

If the 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.

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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 the liquidation of these companies, experts say.