The online gaming industry in India is at a crossroads. With the government’s decision to impose a 28% GST on online gaming retrospectively under Rule 31A (3), a sector that had grown on the strength of innovation and skill is now grappling with regulatory and financial uncertainty. Caught in the web of legal ambiguity between skill and chance, the gaming community—especially platforms that host games like rummy and poker—is fighting to retain its legitimacy and business viability.
Retro Tax Troubles for a Growing Industry
Online gaming in India has grown exponentially over the past decade. Fueled by a young demographic and increasing smartphone penetration, platforms offering poker, rummy, fantasy sports, and casual gaming have attracted millions of users. Many of these games are designed to reward skill, decision-making, and strategic thinking. The online gaming industry, which was levied 18 % GST until 2022, was in for a shock when the Union Government amended the GST Act in August 2023 and introduced new sub-rules — Rule 31A (1), (2) and (3), putting online real money gaming in the same category as betting and gambling. Terming online gaming as a supply of “actionable claim”, GST Council hiked the tax by 10 %. If that wasn’t bad enough, the authorities declared that the 28 % GST, which was brought in for games of skill on October 1, 2023, was being made effective from when online gaming was brought under the GST ambit. The authorities issued show cause notices to companies to pay up the difference of 10 % as Retrospective tax. Rightly calling out the unkind cut, several industry stakeholders have opted for a legal route in the courts.
This unprecedented and wholly unexpected imposition of GST at the highest slab and that too retrospectively for the pre-October 2023 period —without distinguishing between betting, gambling, and skill gaming—has created an existential crisis for the online gaming industry. Platforms that once operated under the belief that skill-based gaming would receive regulatory protection now find themselves bracketed with betting and gambling operations.
Rule 31 and Rule 31A (3): A Double Bind
At the heart of the GST issue are Rule 31 and Rule 31A (3) of the CGST Rules. These provisions were primarily introduced to tax actionable claims pertaining to betting, gambling, horse racing and lottery at 28%. However, the blanket extension of Rule 31A (3) to online gaming—especially games of skill—has drawn sharp criticism.
Legal experts argue that Rule 31 and Rule 31A (3) were never intended to tax legitimate skill gaming operations. By treating games like rummy and poker as if they are equivalent to chance-based betting, the law undermines six decades of jurisprudence that has consistently classified such games under the “skill” category.
What is an Actionable Claim?
The term “actionable claim” has traditionally been applied to cases involving gambling and lotteries, where players stake money with the hope of a return based purely on chance. In contrast, online gaming platforms hosting rummy, poker, and other games of skill do not promise any guaranteed payout or fixed result. Players compete, often in tournaments, and their success depends on their skill.
Treating such participation as involving an actionable claim in any manner not only misapplies legal precedent but opens up the platforms to unfair taxation and retrospective demands. Almost the entire online gaming sector has been hit with multi-thousand crore GST demand notices based on this interpretation – notices which demand GST amounts several times higher than the total revenues ever earned by such online gaming platforms.
The Skill vs Chance Debate
The distinction between skill and chance has long been central to Indian gaming jurisprudence and the distinction flows from the fundamental right to trade and profession under the Constitution. In several cases, courts have ruled that rummy is a game of skill, not gambling. Poker, too, has been argued as requiring substantial skill.
Despite these judgments, the GST regime continues to apply the same tax treatment to all online games involving monetary stakes—regardless of whether they are games of skill or chance. This inconsistency is damaging for the industry, and for the credibility of India’s regulatory framework as well as reputation as an investment destination.
Poker, Rummy, and Public Perception
Games like poker and rummy often suffer from negative public perception, primarily because they are played for money. However, the argument that monetary stakes automatically turn a game of skill into gambling is deeply flawed. Courts have clarified that if a game is predominantly skill-based, even when played for real money, it does not qualify as gambling.
Skill gaming platforms contend that users do not gamble—they compete. Unlike betting, where a user wagers on an outcome they cannot control, skill gaming requires knowledge, practice, and decision-making. The application of GST on the full value of deposits, rather than on the platform’s actual revenue, punishes legitimate business behavior.
Global Perspective: India Out of Sync
Globally, countries like the UK, the US (certain states), and Australia differentiate between skill gaming and gambling. They also tax online platforms based on gross gaming revenue (GGR) or platform fees—not total deposits. India’s decision to impose GST on face value instead puts its online gaming policy out of step with international norms.
This taxation method not only burdens platforms but also drives users away due to reduced prize pools and higher participation costs, potentially pushing them towards illegal betting sites.
Judicial Pushback
Several companies have approached the courts to challenge the application of GST under Rule 31A (3). One of the key arguments by skill-based online platforms is that their offerings involve skill, and thus should not be clubbed with gambling.
These cases are now pending before the Supreme Court, with industry watchers hoping for a ruling that provides clarity on whether there is any supply of an actionable claim in a gaming context and how skill gaming should be taxed.
A Regulatory Gap
One of the serious issues in the online gaming space is the absence of a unified national policy. While GST attempts to create a uniform taxation structure, it fails to acknowledge the nuanced reality of gaming. States like Karnataka have proposed regulatory bodies to oversee skill gaming and differentiate it from chance-based games, but these frameworks are yet to gain national traction.
Without a central authority to define and regulate “skill gaming,” businesses are at the mercy of inconsistent laws and unpredictable tax decisions.
The Path Ahead
If India wants to become a hub for digital innovation and gaming, its tax policy must reflect a modern understanding of the industry. Skill gaming deserves legal and fiscal recognition distinct from gambling. The current application of Rule 31A (3) under GST fails to make this distinction and puts thousands of jobs and millions of dollars of investments at risk.
A shift to taxing platform revenue or GGR—while maintaining strong consumer protection laws—could strike the right balance between revenue generation and industry growth.
Conclusion
The future of online gaming in India hinges not only on innovation but also on regulatory clarity. The government must recognize that not all gaming is gambling. Games of skill like poker and rummy are legitimate forms of entertainment and profession for many. The application of GST must evolve to reflect this reality—before it’s game over for a promising sector.
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