GST is a tax on supply, not profit. The law charges GST on the value of the goods or services you supply, not on the net amount you keep after costs or after settling accounts. If your business assumed it would pay GST only on its margin or its final net outcome, the law does not work that way. The Supreme Court put the point beyond argument on 27 May 2026 in Directorate General of Goods and Services Tax Intelligence v. Gameskraft Technologies Private Limited, holding in terms that there is no statutory basis for excluding or deducting prize pools, winnings, payouts or similar components while determining taxable value.
This is one of the most misunderstood ideas in Indian indirect taxation, and getting it wrong leads to large demands, interest and penalties. Below is a plain-English explainer of why GST attaches to supply, how taxable value is worked out, and what businesses should check.
The core idea: GST is a tax on supply, not profit
The Goods and Services Tax was introduced by the Central Goods and Services Tax Act, 2017 (CGST Act) together with the State GST Acts and the Integrated GST Act, 2017. The taxable event is the supply of goods or services, defined in Section 7 of the CGST Act. GST is triggered the moment a taxable supply happens, regardless of whether you ultimately made money on it.
Profit, by contrast, is a concept from income tax. Income tax is charged on your income after deducting expenses, and is now governed by the Income-tax Act, 2025, which came into force on 1 April 2026 and replaced the Income-tax Act, 1961. GST is charged on the value of each supply, transaction by transaction. The two taxes measure completely different things, and a business can owe GST on a supply in a year it makes an overall loss.
Key takeaway. There are two separate questions and people run them together. Question one: was there a taxable supply? That is Section 7, and profitability is irrelevant to it. Question two: how much do I actually remit in cash? That is output tax minus eligible input tax credit under Sections 16 to 18. Input tax credit reduces what you pay across; it does not convert GST into a tax on your margin.
Four provisions explain why the two taxes measure completely different things.
Section 7, the taxable event
The taxable event is the supply of goods or services. GST is triggered the moment a taxable supply happens, regardless of whether you ultimately made money on it.
Section 15, the value
The value of a supply is the transaction value, the price actually paid or payable, where the parties are unrelated and price is the sole consideration.
Sections 16 to 18, credit
Input tax credit offsets the GST already paid on eligible business inputs. It reduces the cash you remit across, but it does not convert GST into a tax on margin.
Income tax, by contrast
Income tax is charged on income after deducting expenses, under the Income-tax Act, 2025. A business can owe GST on a supply in a year it makes an overall loss.
Why net outcome arguments fail
Businesses sometimes argue they should pay tax only on what they retain at the end, after paying out winnings, refunds, or settling with the other side. The online gaming and casino litigation was exactly that argument, run at scale. Operators contended that their only real income was gross gaming revenue, the net amount retained after payouts to players, and that GST should attach to the platform fee or commission rather than the full amount staked.
The Supreme Court rejected it. In the Gameskraft judgment of 27 May 2026 the Court held that the amount staked or otherwise appropriated towards participation constitutes consideration within the meaning of Section 2(31) of the CGST Act, that the statutory measure for valuation is Section 15 read with the applicable valuation rules, and that there is no statutory basis for excluding or deducting prize pools, winnings or payouts from taxable value. It upheld Rule 31A of the CGST Rules as intra vires, treated the 2023 amendments and Rules 31B and 31C as clarificatory and therefore retrospective, and directed that pending show cause notices and demands be decided on that valuation framework.
The reasoning is structural rather than sector-specific. If tax were levied only on net profit, GST would collapse into something resembling income tax and the design of a transaction-based, value-added tax would break down. That is why courts and tax authorities consistently anchor GST to the supply and its value. For the gaming-specific detail, see our note on GST on online gaming.
What counts as supply under GST
Section 7(1)(a) of the CGST Act says supply includes all forms of supply of goods or services or both, such as sale, transfer, barter, exchange, licence, rental, lease or disposal, made or agreed to be made for a consideration by a person in the course or furtherance of business. It is deliberately wide. The Gameskraft judgment confirmed that supply under Section 7 is not confined to the transfer of a pre-existing actionable claim and extends to arrangements within which actionable-claim interests arise. Once an activity falls within supply and is not exempt or excluded by Schedule III, GST applies on its taxable value.
How taxable value is calculated
The amount on which GST is charged is the taxable value, governed mainly by Section 15 of the CGST Act. Section 15(1) says the value of a supply is the transaction value, which is the price actually paid or payable for the supply, where the supplier and recipient are not related and the price is the sole consideration. Section 15(2) then adds specified inclusions, among them taxes, duties, cesses and charges levied under other laws if charged separately, and amounts the supplier is liable to pay in relation to the supply but which the recipient has borne. GST itself is excluded. Where the standard rule cannot apply, for example between related parties or where consideration is not wholly in money, the valuation rules in the CGST Rules step in.
Turnover compared with profit
| Aspect | GST (tax on supply) | Income tax (tax on profit) |
|---|---|---|
| What is taxed | Value of each supply, broadly turnover | Net income after deducting expenses |
| Taxable event | Making a supply (Section 7, CGST Act) | Earning income in a tax year |
| Base amount | Transaction value (Section 15, CGST Act) | Profits and gains after deductions |
| Effect of a loss-making year | GST is still payable on supplies made | Little or no tax if there is no profit |
| Returns | Periodic, monthly or quarterly, plus an annual return | Annual return |
| Set-off mechanism | Input tax credit on inputs (Sections 16 to 18) | Deduction of business expenses |
| Governing statute | CGST Act, 2017 with the State and Integrated GST Acts | Income-tax Act, 2025, in force from 1 April 2026 |
This table shows why a business cannot simply net everything off and pay GST on the leftover. The two systems are built on different foundations.
Input tax credit: how GST actually avoids double taxation
People confuse paying GST only on margin with input tax credit. They are not the same. GST is charged on the full taxable value of your supply, and you separately claim credit for the GST already paid on your business inputs, subject to the conditions in Sections 16 to 18 of the CGST Act. Section 16(1) requires the inputs to be used or intended to be used in the course or furtherance of business. Section 16(2) requires possession of a tax invoice or debit note, receipt of the goods or services, tax actually paid to the Government, and the return furnished. The net cash you pay the Government is output GST minus eligible credit. That is how GST avoids tax on tax, not by taxing only your profit.
Deadline warning. Input tax credit is not open-ended. Section 16(4) of the CGST Act bars credit on an invoice or debit note after the thirtieth day of November following the end of the financial year to which it pertains, or the furnishing of the relevant annual return, whichever is earlier. Miss that date and the credit is gone, even though the tax was genuinely paid. Reconcile your purchase register against the auto-populated statement every month, not once a year in November.
How to check whether GST applies to a transaction
Work through the questions in this order rather than starting from the rate. Most disputes are lost at step two or three, not at the rate.
- Is there a supply? Test the transaction against Section 7(1). Look for goods or services, consideration, and the course or furtherance of business.
- Is it excluded or exempt? Check Schedule III, which lists activities treated as neither a supply of goods nor a supply of services, and the exemption notifications for your sector.
- Are you liable to register? Section 22(1) makes a supplier liable to register in a State where aggregate turnover in a financial year exceeds twenty lakh rupees, and ten lakh rupees for special category States, with the Government empowered to enhance those thresholds by notification. Confirm the enhanced threshold applicable to your State and to your kind of supply before concluding you are outside the net.
- Classify the supply. Identify the correct HSN or SAC code and the applicable rate notification. Classification drives the rate and often the exemption.
- Fix the taxable value. Apply Section 15(1) first. If the parties are related or price is not the sole consideration, move to the valuation rules. Do not deduct payouts, discounts that fail the Section 15(3) conditions, or amounts you never really kept.
- Determine time and place of supply. These decide the tax period and whether the levy is CGST plus SGST or IGST.
- Compute the credit. Test each input against Section 16 and the blocked-credit list in Section 17(5), then set eligible credit against output tax.
- Document the position. Keep the invoice trail, the classification reasoning, and any advance ruling or circular you relied on. That file is what defends you at adjudication.
Credit is the relief valve, and it has four gates on it.
Section 16(1), business use
The inputs must be used or intended to be used in the course or furtherance of business before any credit is available at all.
Section 16(2), four conditions
Possession of a tax invoice or debit note, receipt of the goods or services, tax actually paid to the Government, and the return furnished.
Section 16(4), the cut-off
No credit on an invoice or debit note after 30 November following the end of the relevant financial year, or the annual return, whichever is earlier.
Section 17(5), blocked credits
Some inputs are blocked outright, so each one has to be tested against that list before eligible credit is set against output tax.
Practical meaning for individuals and businesses
- Turnover, not margin, drives GST. Plan cash flow on the assumption GST is due on the value of supplies, not on what you keep.
- A loss year does not switch GST off. If you make taxable supplies, the obligations continue.
- Classification and valuation matter more than the rate. Whether something is a supply, its correct rate, and its taxable value can move your liability by orders of magnitude.
- Credit is your relief valve. Maintain clean invoices and reconcile monthly so eligible credits are not lost to Section 16(4).
- Interest runs automatically. Section 50(1) provides for interest on delayed payment at a notified rate not exceeding eighteen per cent, payable on your own without waiting for a demand.
- Special sectors have special rules. Gaming, betting, lotteries and real estate have sector-specific valuation and rate provisions that are heavily litigated, and after Gameskraft the 2023 amendments and Rules 31B and 31C operate retrospectively.
Common misunderstandings
| Belief | Reality under GST law |
|---|---|
| "I only pay GST on profit." | GST is on the value of the supply, not profit (Sections 7 and 15). |
| "No profit this year, so no GST." | GST is still due on taxable supplies made during the year. |
| "I can net payouts against receipts." | No. Gameskraft (2026) held there is no statutory basis for deducting prize pools, winnings or payouts from taxable value. |
| "GST and income tax tax the same thing." | They tax different bases entirely, under different statutes. |
| "Input tax credit means I pay only on margin." | Credit is an offset mechanism, not margin-only taxation. |
| "I can claim old credit whenever I find the invoice." | Section 16(4) cuts it off on 30 November after the relevant financial year, or on filing the annual return, whichever is earlier. |
A note on changing law and section numbers
GST rates, sector valuation rules and procedural provisions are amended frequently through Finance Acts, GST Council recommendations and notifications, so verify the version in force for the period in dispute rather than the version in force today. On the direct tax side, the Income-tax Act, 2025 replaced the Income-tax Act, 1961 with effect from 1 April 2026, so older articles contrasting GST with "Section 28 of the 1961 Act" are now out of date. Separately, India's criminal statutes were renumbered with effect from 1 July 2024: the Code of Criminal Procedure, 1973 is now the Bharatiya Nagarik Suraksha Sanhita, 2023, and the Indian Penal Code, 1860 is now the Bharatiya Nyaya Sanhita, 2023. That matters where a tax dispute overlaps with prosecution or arrest, for example the inherent power of the High Court once found in Section 482 CrPC, now Section 528 BNSS. Always verify the current section numbers, rates and notifications before relying on them.
Where this fits and getting help
If your business is unsure whether GST applies to a transaction, how to value a supply, or you have received a demand or show cause notice, our corporate and commercial law team can help you assess the position and respond. The bare statute is on the Government of India's official law portal, India Code, Central Goods and Services Tax Act, 2017.
Frequently Asked Questions
Is GST charged on profit or on turnover?
On the value of the supplies you make, broadly your turnover, not on your net profit. Profit is the basis for income tax, not GST.
Do I still owe GST if my business made a loss?
Yes. If you made taxable supplies, GST is payable on the value of those supplies even in a loss-making year, subject to registration thresholds and exemptions.
What is supply under GST?
Section 7(1)(a) of the CGST Act covers all forms of supply of goods or services, such as sale, transfer, barter, exchange, licence, rental, lease or disposal, made for consideration in the course or furtherance of business.
What is the taxable value for GST?
Under Section 15(1) it is the transaction value, the price actually paid or payable, where the parties are unrelated and price is the sole consideration, with the inclusions in Section 15(2) and the valuation rules where the general rule cannot apply.
Does input tax credit mean I am taxed only on my margin?
No. GST is charged on the full taxable value of your supply. Credit then lets you offset the GST already paid on eligible inputs under Sections 16 to 18. The two mechanisms are separate.
What did the Supreme Court decide in the Gameskraft case?
On 27 May 2026 the Court upheld the levy of GST on actionable claims arising from betting and gambling, held that amounts staked constitute consideration under Section 2(31), upheld Rule 31A as intra vires, treated the 2023 amendments and Rules 31B and 31C as clarificatory and retrospective, and held there is no statutory basis for excluding prize pools, winnings or payouts from taxable value.
When do I have to register for GST?
Section 22(1) requires registration in a State where aggregate turnover in a financial year exceeds twenty lakh rupees, or ten lakh rupees for special category States, subject to enhanced thresholds notified by the Government. Certain categories must register irrespective of turnover, so check Section 24 as well.
By when must I claim input tax credit?
Section 16(4) bars credit on an invoice or debit note after 30 November following the end of the financial year to which it pertains, or after the annual return is furnished, whichever is earlier.
What interest applies if I pay GST late?
Section 50(1) requires interest to be paid on your own, at a notified rate not exceeding eighteen per cent, for the period the tax remains unpaid.
Should I get professional advice on my GST liability?
For valuation, classification, sector-specific rules or a live dispute, yes. Small errors compound quickly into large demands once interest and penalty are added.
This article is for general informational purposes only and does not constitute legal advice. Laws change and every situation is different; please consult a qualified advocate about your specific matter.
