THE 28% TAX REDIME
Abstract
The taxation of online gaming and casinos has emerged as one of the most contested chapters in India’s Goods and Services Tax (“GST”) jurisprudence. What began as an interpretational ambiguity over whether stakes placed on digital platforms constituted a taxable supply has, over roughly four years, evolved into a full-blown constitutional and fiscal controversy culminating in a landmark ruling of the Supreme Court. At its core, the dispute concerns a single question with enormous financial consequences: should GST at the rate of 28% be levied on the platform’s commission alone, or on the entire amount staked by a player, irrespective of the outcome of the game?
This paper examines the legal architecture that governs the levy of GST on online gaming and casinos following the amendments introduced through the Central Goods and Services Tax (Amendment) Act, 2023 and the accompanying valuation rules. It traces the classification of stakes as “actionable claims” — a category of intangible property historically reserved for lottery, betting and gambling — and explains how this classification has been extended, retrospectively, to online money gaming and casino chips. The analysis proceeds through the statutory framework under the CGST Act, 2017, the jurisprudential foundations laid in State of Bombay v. R.M.D. Chamarbaugwala1 and Sunrise Associates v. Govt. of NCT of Delhi2, the constitutional validation in Skill Lotto Solutions3, and the industry’s principal challenge in the Gameskraft litigation, which was finally resolved by the Supreme Court in May 2026.
For the purposes of this paper, three terms recur and merit early definition. An actionable claimis a claim to an unsecured debt or to a beneficial interest in movable property not in the claimant’s possession, which civil courts recognise as affording grounds for relief. A specified actionable claim is the narrower statutory sub-category — lottery, betting, gambling, horse racing, casinos and online money gaming — that Parliament has chosen to bring within the GST net.
The face value of a bet refers to the total amount deposited, staked or paid by a player to participate in a game, as distinguished from the Gross Gaming Revenue (GGR), which is only the commission, platform fee or margin retained by the operator after payouts. The shift in the taxable base from GGR to face value is the single most consequential change introduced by the 2023 amendment, and it forms the analytical spine of this paper.
The paper proceeds in five parts. Part II sets out the statutory and constitutional framework, tracing the position both before and after the 2023 amendment. Part III examines the leading case law, from the foundational res extra commercium doctrine to the Supreme Court’s 2026 ruling in the Gameskraft appeals. Part IV offers a critical evaluation of the regime’s doctrinal soundness, economic impact and residual uncertainties. Part V concludes with observations on the likely future path of the law, followed by a set of frequently asked questions for practitioners and students.
Legal Framework
The statutory starting point is Section 2(52) of the CGST Act, 2017, which defines “goods” to include “every kind of movable property other than money and securities but includes actionable claim.”5 Read with Schedule III, Entry 6, the Act carved out an exception within an exception: while actionable claims are generally treated as neither a supply of goods nor a supply of services (and are therefore outside the tax net altogether), lottery, betting and gambling were expressly excluded from this exemption, and thus remained taxable even before 2023.
Parliament’s competence to legislate on this subject flows from Article 246A of the Constitution, inserted by the One Hundred and First Amendment, which confers concurrent power on Parliament and the State Legislatures to make laws with respect to GST, subject to recommendations of the GST Council.
Prior to October 2023, the online gaming industry operated in a zone of genuine ambiguity. Platforms offering games said to involve predominant skill — rummy, fantasy sports, poker variants — typically discharged GST at 18% on the platform fee alone, treating themselves as intermediaries facilitating a service rather than as suppliers of a betting product. Casinos and platforms offering games of chance, by contrast, were generally understood to attract 28% GST on the face value of chips or bets. This bifurcation rested on a constitutional and common-law distinction between “games of skill” and “games of chance,” the former traditionally falling outside the definition of gambling under state legislation and under Article 19(1)(g) jurisprudence.
The Central Board of Indirect Taxes and Customs, through the Directorate General of GST Intelligence (“DGGI”), took a contrary view. In several show-cause notices issued from 2021 onward, the department alleged that platforms were, in substance, suppliers of actionable claims in the nature of betting, and hence liable to pay 28% GST on the entire face value from the very inception of the GST regime in July 2017 — not merely from any later date. The most prominent of these notices, addressed to Gameskraft Technologies, demanded approximately ₹21,000 crore, a sum that dwarfed the company’s cumulative revenue for the period in question.
The controversy prompted the GST Council to intervene. Following inconclusive deliberations at its 47th meeting, the Council reached consensus at its 50th and 51st meetings in July and August 2023 that a uniform 28% rate would apply to online gaming, casinos and horse racing on the full face value, without distinction between skill and chance.
The 2023 amendment achieved this through three coordinated changes. First, it inserted definitions of “online gaming,” “online money gaming” and “specified actionable claim” into the CGST Act, and substituted Entry 6 of Schedule III to expressly bring online money gaming, casinos and horse racing within the ambit of taxable actionable claims, alongside lottery, betting and gambling.
Second, it introduced Section 15(5), read with new Rules 31B and 31C of the CGST Rules, 2017, to prescribe a bespoke valuation mechanism: the taxable value of online money gaming is the total amount paid or payable to, or deposited with, the supplier by or on behalf of the player, excluding amounts entered from previously accumulated winnings.9 Rule 31B fixes this valuation specifically for online money gaming,10 while Rule 31C prescribes an analogous mechanism for casinos, valuing supply at the amount paid for the purchase of chips, tokens or coins used for participation in games.
Third, the amendment declared these changes to be clarificatory in nature — a characterisation with immense practical significance, because clarificatory amendments are ordinarily treated as operating retrospectively, validating tax demands stretching back to 2017 rather than only from the date of the amendment itself.
Analysis
A.The Foundational Doctrine: Res Extra Commercium
The constitutional legitimacy of taxing betting and gambling activities more heavily, and differently, from ordinary trade rests on the doctrine articulated in State of Bombay v. R.M.D. Chamarbaugwala12, where the Supreme Court held that gambling activities are res extra commercium — things outside the sphere of protected trade, commerce or intercourse under Article 19(1)(g) and Article 301. Although the outward instruments of trade may be employed, activities that inherently exploit the human susceptibility to speculative gain do not enjoy the same constitutional insulation as ordinary commerce. This doctrine has been the load-bearing wall for every subsequent decision upholding differential and heavier taxation of betting-adjacent activities, including the 2026 online gaming ruling
B. Actionable Claims and the Nature of a Wager: Sunrise Associates
In Sunrise Associates v. Govt. of NCT of Delhi13, a Constitution Bench overruled the earlier position in H. Anraj v. Government of Tamil Nadu and held that the sale of a lottery ticket does not involve the transfer of goods at all, but rather the transfer of a single, inseparable actionable claim — the chance to win a prize. The Court reasoned that a lottery ticket has no intrinsic value; it is merely a token evidencing a contingent claim to a beneficial interest not yet in the purchaser’s possession, squarely fitting the definition of an actionable claim under Section 3 of the Transfer of Property Act, 1882.14 This holding matters far beyond lotteries: it establishes, as binding authority relied upon in later GST disputes, that a wager on an uncertain future event is properly characterised as an actionable claim rather than as ordinary goods or a service — the very characterisation later applied to online gaming stakes.
C. Constitutional Validation: Skill Lotto Solutions
The architecture built on these foundations was tested directly under the GST regime in Skill Lotto Solutions Pvt. Ltd. v. Union of India15. The petitioner, an authorised lottery distributor, challenged Section 2(52) on the ground that including actionable claims within “goods” conflicted with the constitutional definition under Article 366(12), and that singling out lottery, betting and gambling from the broader universe of actionable claims for taxation was discriminatory and violative of Article 14. A three-judge bench rejected both contentions. It held that the definition of “goods” in Article 366(12) is inclusive rather than exhaustive, that Parliament’s power under Article 246A must be construed liberally, and that lottery, betting and gambling form a rationally distinct class — having been separately regulated and taxed since before Independence — such that excluding them alone from the general actionable-claim exemption satisfies the test of intelligible differentia. The Court also upheld the levy of GST on the full face value of a lottery ticket, including the prize-money component, rejecting the argument that only the distributor’s margin should be taxed. This is the same valuation logic later extended to online gaming.
D. The Industry’s Challenge: Gameskraft and the Karnataka High Court
The flashpoint for online gaming specifically arose in Gameskraft Technologies Pvt. Ltd. v. Directorate General of GST Intelligence16. Gameskraft, an online rummy operator, received a show-cause notice in September 2022 demanding roughly ₹21,000 crore in tax, interest and penalty, on the theory that rummy played for stakes constituted betting and gambling attracting 28% GST on the full amount staked. The Karnataka High Court quashed the notice, holding that rummy is predominantly a game of skill, that games of skill fall outside the ordinary meaning of “gambling” and “betting,” and that the department’s attempt to tax the entire pooled stake —rather than the platform’s commission — conflated a game of skill with a game of chance without statutory basis. This decision, for a period, appeared to settle the matter in the industry’s favour and was seen as a validation of the long-standing skill-versus-chance distinction
E. Finality: The Supreme Court’s 2026 Ruling
The Union of India appealed, and the Supreme Court stayed the Karnataka High Court’s judgment pending final disposal. On 27 May 2026, a bench of Justices J.B. Pardiwala and R. Mahadevan delivered the decisive ruling in the batch of appeals, setting aside the Karnataka High Court’s judgment.17 The Court held that activities on online gaming, fantasy sports and casino platforms — wherever players stake money or money’s worth on an uncertain outcome — constitute “betting and gambling” for GST purposes, irrespective of whether the underlying game is one of skill or of chance, and that such platforms supply “actionable claims” that qualify as goods under Section 2(52).
The Court further held that operators are not mere intermediaries but are themselves suppliers of actionable claims, since they exercise control over the game engine, prize pools, player wallets and settlement of winnings.18 Consequently, GST at 28% is payable on the total stake deposited by a player, and there is no statutory basis for excluding prize pools, winnings or payouts when computing the taxable value — confirming that Rules 31B and 31C apply on the gross deposit rather than any net figure.
Perhaps the most consequential holding concerned retrospectivity. The Court accepted the Union’s characterisation of the 2023 amendments — the insertion of “online money gaming” and “specified actionable claim,” the substituted Schedule III Entry 6, and Rules 31B and 31C — as clarificatory rather than levy-creating, holding that they “neither create a fresh levy nor introduce a new taxable event for the first time,” since taxability of actionable claims from betting and gambling already existed under the pre-amendment framework.19 On the constitutional questions, discussed further in Part IV below, the Court rejected the industry’s challenges in their entirety, holding that commercial hardship alone cannot render a fiscal measure unconstitutional.
Evaluation
A.The Retrospectivity Problem
The characterisation of the 2023 amendments as merely “clarificatory” is the regime’s most vulnerable doctrinal joint. Genuinely clarificatory amendments remove ambiguity about an already-settled legal position; here, the pre-2023 position was sufficiently contested that a High Court reached the opposite conclusion after full adversarial argument. Treating a legislative change that reverses a High Court’s considered interpretation as merely declaratory blurs the line between clarification and retrospective imposition of a fresh levy — the latter being constitutionally disfavoured, particularly in taxation, where predictability is a recognised value. The consequence, as the Supreme Court itself acknowledged, is a “piquant situation” in which confirmed demands can exceed the market capitalisation of the very companies against whom they are raised.
B. Erasure of the Skill–Chance Distinction
For GST purposes, the amendment and the 2026 ruling together dissolve a distinction that continues to matter under state gambling and public-order legislation. A platform may lawfully operate as a game of skill under state law in Nagaland or Sikkim, yet still be taxed identically to a game of pure chance under the CGST Act. This creates an anomalous position where the same activity is treated as legitimate commerce for regulatory purposes but as res extra commerciumfor tax purposes — a bifurcation that sits uneasily with the coherence the Supreme Court itself extolled as a virtue of fiscal policy.
C. Economic Impact on the Sector
The shift from a GGR-based to a face-value-based taxable base is not a marginal recalibration; it is an order-of-magnitude increase in effective tax incidence. On a representative ₹100 deposit, where an operator retains ₹10 as commission and disburses ₹90 as winnings, the pre-amendment liability was approximately ₹1.80 (18% of ₹10), whereas the post-amendment liability is ₹28 (28% of ₹100). That increase, of more than fifteen-fold, is frequently larger than the operator’s own margin, which explains why the industry has characterised the levy as one capable of taxing lossmaking transactions into insolvency rather than merely reducing profitability. Aggregate demands confirmed against the sector following the 2026 ruling have been estimated at 19approximately ₹2.5 lakh crore across pending disputes, a figure that substantially exceeds the disclosed market value of several affected companies.
D. Constitutional Objections and Their Rejection
Petitioners raised challenges under Articles 14, 19, 20, 21 and 265 of the Constitution,20 arguing that the retrospective demand amounted to an unreasonable restriction on the right to carry on business, an arbitrary and confiscatory exercise of the taxing power, and a deprivation of property without due process. The Supreme Court rejected each contention, holding that a heavier tax burden or diminished profitability does not, without more, render a fiscal measure unconstitutional, and that the classification of specified actionable claims for differential taxation rests on the same rational basis already affirmed in Skill Lotto Solutions. The ruling leaves intact the broader principle that courts will not ordinarily sit in judgment over the wisdom or severity of a tax, so long as the legislative competence and classificatory rationale are sound.
E. Federalism and the State List Question Betting and gambling fall within Entry 34 of List II of the Seventh Schedule, a subject reserved to the States.21 The GST regime does not disturb the States’ plenary power to regulate or prohibit gambling and betting as such; Article 246A operates independently, as a taxing power exercisable regardless of whether the underlying activity is otherwise permitted, licensed or banned in a given State. This dual structure means an activity can be simultaneously illegal in one State, tightly licensed in another, and uniformly taxed at 28% GST across both — a feature the Supreme Court treated as unremarkable, since the taxing power under Article 246A is not contingent on the legality of the underlying transaction under state law.
F. Suggestions for Reform A tiered structure — retaining 28% face-value taxation for casinos, horse racing and games of pure chance, while taxing genuine skill-predominant formats on GGR at a moderate rate — could reconcile revenue objectives with the doctrinal distinction that continues to operate elsewhere in Indian law, and would bring India’s regime closer to the internationally common GGR model. Clearer guidance on the place-of-supply for cross-border online gaming, streamlined registration for offshore suppliers, and a definitive administrative clarification on the treatment of re-staked winnings would each reduce the residual compliance uncertainty that persists even after the Supreme Court’s ruling.
Conclusion
The trajectory from Sunrise Associates through Skill Lotto Solutions to the 2026 Games Kraft ruling traces a consistent judicial willingness to treat wagering-type transactions as a distinct, heavily taxable category of actionable claim, largely insulated from the ordinary protections afforded to trade and commerce. The 2023 amendments and the valuation mechanism under Rules 31B and 31C have now received the imprimatur of the Supreme Court, and the question of whether GST applies to the full face value of a stake, retrospectively, from 2017, stands settled as a matter of law.
What remains unsettled is not the legal position but its practical administration: the computation of individual demands, the treatment of complex ledger histories for casinos operating without complete records, and the sector’s capacity to absorb a tax burden many times larger than what it had budgeted for. The Supreme Court’s own observation that fiscal certainty in emerging technological sectors bears on investor confidence and India’s digital ambitions may prove, in time, to be in tension with a ruling that produces exactly the kind of retrospective fiscal shock most likely to unsettle that confidence. The path forward for the law is therefore less about the constitutional validity of the levy — now conclusively affirmed — and more about whether Parliament and the GST Council choose to temper a legally sound but commercially severe regime through calibrated, prospective reform.
References and Citations
Central Goods and Services Tax (Amendment) Act, 2023
Constitution of India, arts. 14, 19, 20, 21, 246A, 265 and 301; Seventh Schedule, List II, Entry 34.
The Central Goods and Services Tax Act, 2017, ss. 2(52), 15(5); Schedule III, Entry 6.
Central Goods and Services Tax (Amendment) Act, 2023.
Central Goods and Services Tax Rules, 2017, rr. 31B and 31C, inserted by the CGST (Third Amendment) Rules, 2023.
The Transfer of Property Act, 1882, s. 3.The Income-tax Act, 1961, s. 194BA, inserted by the Finance Act, 2023.
State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699.
H. Anraj v. Government of Tamil Nadu, (1986) 1 SCC 414.
Sunrise Associates v. Govt. of NCT of Delhi, (2006) 5 SCC 603.
Skill Lotto Solutions Pvt. Ltd. v. Union of India, 2020 SCC OnLine SC 990.
Gameskraft Technologies Pvt. Ltd. v. Directorate General of GST Intelligence, Karnataka High Court, judgment dated 11 May 2023, W.P. No. 19570/2022.
Directorate General of GST Intelligence v. Gameskraft Technologies Pvt. Ltd., Supreme Court of India, SLP (C) Nos. 19366–19369 of 2023, judgment dated 27 May 2026
FAQ
1.What is the current GST rate on online gaming and casinos in India?
A uniform rate of 28% applies to online money gaming, casinos and horse racing, levied on the full face value of the amount deposited, staked or paid by the player, without any distinction between games of skill and games of chance.
2.Why is GST levied on the full deposit rather than only the platform’s commission?
The 2023 amendment reclassified the player’s stake as a “specified actionable claim,” making the operator the supplier of that claim rather than a mere facilitator. Rules 31B and 31C accordingly fix the taxable value at the total amount paid or deposited with the supplier, not merely the operator’s margin.
3. Does the 28% GST apply retrospectively, from before October 2023?
Yes. The Supreme Court, in its May 2026 ruling, held that the 2023 amendments were clarificatory rather than levy-creating, and therefore apply retrospectively from the commencement of the GST regime in July 2017, validating demands raised for that earlier period.
4. Is winnings re-deposited by a player into the same wallet taxed again?
No. The valuation rules clarify that amounts representing winnings already taxed once, and redeployed for further play without withdrawal, are not treated as a fresh deposit for GST purposes, so the tax attaches once to money entering the ecosystem.
5. Does the skill-versus-chance distinction still matter for taxation?
Not for GST purposes. The Supreme Court held that a game becomes a taxable wager the moment money is staked on an uncertain outcome, regardless of whether skill or chance predominantly determines the result. The distinction may still be relevant under separate state gambling legislation.
6. How is a casino’s taxable value computed differently from online gaming?
Online money gaming is valued under Rule 31B, based on amounts deposited with the platform. Casinos are valued under Rule 31C, based on the amount paid by a player to purchase chips or tokens for participation in games within the casino.
7. Did the Supreme Court find the 28% levy unconstitutional?
No. The Court rejected challenges under Articles 14, 19, 20, 21 and 265, holding that a heavier tax burden or reduced profitability, by itself, does not render a fiscal measure unconstitutional, and that the classification of betting-type actionable claims for differential taxation rests on a rational basis recognised since Skill Lotto Solutions.
8.What recourse do operators have if they believe a specific demand is wrongly computed?
The Supreme Court has kept computational and valuation objections open for determination before the adjudicating authorities in each case, even while affirming the legal basis of the levy itself, so operators may still contest the arithmetic of individual demands.
