GST on Online Gaming: Supply vs Profit Explained

GST on online gaming was, for years, the most contested tax question in India. At its core lay a simple-sounding dispute: should the 28% Goods and Services Tax apply to the full amount a player deposits or stakes (the "supply" view), or only to the platform's commission or gross gaming revenue (the "profit" view)? The difference meant a tax bill several times larger for an operator.

That question is no longer open. In Directorate General of Goods and Services Tax Intelligence (HQs) v. Gameskraft Technologies Private Limited, 2026 INSC 595, decided on 27 May 2026, the Supreme Court upheld the levy on the full value staked and rejected the margin argument outright. Separately, Parliament has since prohibited online money games altogether. This explainer sets out what the law now is, what it means for operators facing legacy demands, and where the remaining fights are.

What the "supply vs profit" debate actually meant

Under the GST framework, tax is charged on the "value of supply" of goods or services. The fight was about what the supply is in a betting or gaming transaction.

• The supply (face value) view. The taxable amount is the entire sum the player puts in, every rupee deposited or staked. On this reading, if a player stakes Rs 100, GST is calculated on Rs 100.
• The profit (margin) view. The platform argued it only supplies a service worth its platform fee or the gross gaming revenue, the money it actually keeps after paying out winnings. On this reading, GST should fall only on, say, the Rs 10 commission, not the full Rs 100.

The stakes were enormous because the rate involved is the highest GST slab, 28%. Whether that 28% sits on the deposit or on the margin changes the effective burden roughly ten-fold.

A second question ran underneath: is what these platforms offer a game of skill or a game of chance? Indian courts had long treated games of skill as legitimate business activity and games of chance as something the State may regulate or tax more heavily. Operators built their tax position on that distinction.

What the Supreme Court decided in Gameskraft

The Court's conclusions in 2026 INSC 595 dispose of both questions. In summary:

• Skill versus chance is not the test. The essential element of betting and gambling lies in staking money or money's worth on uncertain outcomes. Even where the underlying activity involves substantial skill, once participation is conditioned on staking money on an uncertain outcome, the transaction acquires the character of betting and gambling for GST purposes. Fantasy sports are expressly covered.
• The levy is constitutionally valid. Sections 2(31), 2(52), 7, 9 and 15 of the CGST Act, 2017, as they operate on actionable claims arising from betting and gambling, are traceable to Article 246A. Challenges under Articles 14, 19(1)(g), 21, 265, 366(12) and 366(12A) were rejected.
• Operators are suppliers, not intermediaries. Online gaming involving pooled stakes gives rise to actionable-claim interests that are taxable supplies under Section 7. The taxable supply arises on the placement and appropriation of the stake towards gameplay.
• No deduction for the prize pool. The amount staked is "consideration" under Section 2(31), and the Court held there is no statutory basis for excluding or deducting prize pools, winnings or payouts in determining taxable value.
• Rules 31A, 31B and 31C are valid. Rule 31A is intra vires as a machinery provision. The 2023 amendments, including to Entry 6 of Schedule III and the insertion of Rules 31B and 31C, are clarificatory and therefore retrospective. They create no fresh levy.
• Legacy notices are governed by the same rules. Pending show-cause notices, adjudications and consequential demands for online gaming, fantasy sports and casinos are to be decided under Rules 31B and 31C as applicable.
• Casinos got a partial reprieve on computation only. The department's power to use Rule 31 and best-judgment assessment where records are incomplete was upheld, but the actual computations, assumptions and proportional allocations remain open for reconsideration by the adjudicating authority in line with Rule 31C.

Key takeaway. The margin argument is dead, and it is dead retrospectively. Because the Supreme Court held the 2023 amendments to be clarificatory and therefore retrospective, an operator who paid 18% on platform fee or 28% on gross gaming revenue for earlier years cannot say the law only changed in October 2023. What is still live is computation: how much was actually deposited, what was refunded, what has already been paid, and, for casinos, whether the department's reconstruction of the numbers can be sustained. Fight the arithmetic, not the principle.

Four holdings in 2026 INSC 595 do all the work.

The statutory framework after the 2023 amendments

The levy flows from the Central Goods and Services Tax Act, 2017 and the parallel State GST Acts, read with the rules and rate notifications. The provisions that matter:

• Section 7 defines "supply", the trigger for the whole tax, and Section 15 sets out how value is determined.
• Section 2(80B) defines "online money gaming" as online gaming in which players pay or deposit money or money's worth, including virtual digital assets, expecting to win money or money's worth, whether or not the outcome is based on skill, chance or both, and whether or not it is permissible under any other law. The definition itself removes the skill defence.
• Section 2(102A) defines "specified actionable claim" to include betting, casinos, gambling, horse racing, lottery and online money gaming.
• Entry 6 of Schedule III now excludes from the no-supply carve-out only actionable claims other than specified actionable claims. In other words, ordinary actionable claims are still outside GST, but gaming and betting claims are inside it.
• The proviso to Section 2(105) deems a person who organises or arranges, directly or indirectly, the supply of specified actionable claims, including anyone who owns, operates or manages the platform, to be the supplier.
• Rule 31B of the CGST Rules, 2017 values online money gaming at the total amount paid, payable or deposited with the supplier by or on behalf of the player, including in virtual digital assets. Amounts refunded to the player are expressly not deductible.
• Rule 31C does the same for casinos, valuing the supply at the total paid for tokens, chips, coins or tickets, or for participation where no token is required.
• Rate. The 28% entry challenged and upheld in Gameskraft is Entry 229 inserted into the goods rate notification by Notification No. 6/2018-Central Tax (Rate) dated 25 January 2018. Confirm the current rate notification on the CBIC GST portal before computing anything.

Supply view vs profit view: a side-by-side

The table illustrates the practical gap on a Rs 100 deposit where the platform keeps a 10% commission. Figures are illustrative only.

Game of skill vs game of chance

The skill versus chance label still matters for some regulatory and criminal-law questions in the States. It no longer helps on GST valuation, and Section 2(80B) of the CGST Act says so in terms.

Common mistake. Continuing to compute GST on gross gaming revenue because "our game is a game of skill" or "our platform only holds player money in an escrow-style account". Both arguments were run in Gameskraft and both failed. Section 2(80B) taxes online money gaming whether or not the outcome turns on skill, and whether or not the activity is permissible under any other law, and the Court held the operator is the supplier, not a stakeholder holding funds in trust. Continuing to file on a margin basis now builds interest and penalty exposure on top of a demand that is no longer arguable in principle.

Online money games are now prohibited outright

Running alongside the tax fight, Parliament enacted the Promotion and Regulation of Online Gaming Act, 2025 (Act 32 of 2025), which received assent on 22 August 2025. Chapter III of that Act does three things:

• Section 5 prohibits any person from offering, aiding, abetting, inducing or otherwise engaging in the offering of an online money game or online money gaming service.
• Section 6 prohibits advertising, in any medium, anything that directly or indirectly promotes or induces a person to play an online money game.
• Section 7 prohibits banks, financial institutions and any other person facilitating financial transactions from processing or authorising funds towards payment for an online money gaming service.

Section 9 sets the penalties: up to three years imprisonment or a fine up to Rs 1 crore, or both, for offering a prohibited service in breach of Section 5; up to two years or Rs 50 lakh, or both, for the advertising offence under Section 6; and up to three years or Rs 1 crore, or both, for facilitating the funds transfer in breach of Section 7. Repeat convictions under Sections 5 or 7 attract a minimum of three years, extending to five.

The Act defines "online money game" in Section 2 as an online game, irrespective of whether it is based on skill, chance or both, played by paying fees or depositing money or other stakes in expectation of winning. E-sports recognised under the National Sports Governance Act, 2025 and registered with the Authority, and online social games that involve no staking, fall outside the prohibition.

So the modern position has two layers. Going forward, offering online money games is prohibited, not merely taxed. Looking backwards, the GST demands for the period when they were offered remain fully payable on face value.

The 2025 Act attacks the business from three directions, and backs each with a penalty.

What this means in practice

For gaming companies and casinos. The valuation question is settled, so the live issues are quantum, records and process. Map the transaction flow (deposit, stake, payout, refund, commission), reconcile it to Rule 31B or 31C, and identify what has already been discharged. Casinos in particular should note that the Supreme Court left the department's actual computations open to challenge before the adjudicating authority.

For investors and founders. Tax and legality are now the first diligence items in this sector, not the last. Any residual real-money model has to be tested against Sections 2 and 5 of the 2025 Act before a rupee is invested, and legacy GST exposure has to be quantified on a face-value basis rather than a margin basis.

For players. Keep the GST question separate from income tax on winnings, which is a distinct levy on you with its own rate and deduction-at-source rules. And be aware that Section 7 of the 2025 Act now targets the payment rails, so funding a prohibited platform is itself part of the regulated conduct.

If your business is dealing with GST notices, valuation disputes or contracts in this space, this is squarely a commercial and tax-litigation matter. You can learn more about how we approach such work on our corporate and commercial law page.

How a business should respond to a GST demand

1. Read the notice carefully. Identify the tax periods, whether it is issued under Section 73, Section 74 or Section 74A of the CGST Act, and the exact valuation method the department has applied.
2. Check the arithmetic first. After Gameskraft the principle is closed but the computation is not. Reconcile the department's figure against deposits actually received, refunds made, amounts already paid, and any double counting between the online gaming and casino heads.
3. Preserve records. Deposit and payout ledgers, commission accounts, bank and escrow statements, terms of service, and player agreements. Absent records, the department may resort to best-judgment assessment, and the Supreme Court has held that is legitimate.
4. Be consistent about characterisation. Do not describe the same transaction as a service in your contracts, an actionable claim in your returns, and a trust arrangement in your reply. Inconsistency is what sank several arguments in Gameskraft.
5. Respond within time. Sections 73, 74 and 74A each carry their own timelines for the notice and the order. Missing the reply date leaves you defending on quantum with no case on record.
6. Budget for the pre-deposit before appealing. Under Section 107 you must pay in full the tax, interest, fine, fee and penalty you admit, plus 10% of the remaining disputed tax, subject to a cap of Rs 20 crore, before the appeal is even filed.
7. Escalate in the right order. Reply, adjudication, appeal to the Appellate Authority, then the Appellate Tribunal, then the High Court. Jumping a rung usually means being sent back down it.

Deadline warning. Section 107(1) of the CGST Act gives you three months from the date the adjudication order is communicated to file an appeal to the Appellate Authority. Section 107(4) allows a further one month only, and only if the authority is satisfied you were prevented by sufficient cause. There is no discretion beyond that. Combine that with the Section 107(6) pre-deposit and the practical point is this: the money has to be arranged inside the same window as the appeal, so start the funding conversation the day the order arrives, not in the fourth month.

For related reading, see our insights on how to reply to a GST show-cause notice and on skill versus chance in Indian gaming law. The statute itself is on the Government of India's official portal, the Central Goods and Services Tax Act, 2017 on India Code, and the rate notifications and circulars are published on the CBIC GST portal.

Frequently Asked Questions

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.

Related guides and where to get help

If this is a live problem rather than background reading, our corporate and commercial practice handles these matters from Bengaluru, including for clients who cannot attend court in person. These guides go deeper on the neighbouring questions:

• GST Is a Tax on Supply, Not Profit: What It Means
• Shareholders Agreement in India: Key Clauses Explained
• GST Registration in Bangalore: Threshold, Documents and Process