Supreme Court Upholds Retrospective 28% GST on Online Gaming: Actionable Claims, PROG Act 2025 and the End of the Skill vs Chance Doctrine Explained

Background of the dispute: India's GST regime, introduced through the 101st Constitutional Amendment Act, 2016, taxes the "supply of goods and services." For years, online gaming companies paid GST at 18% only on the platform fee or commission they retained — also called Gross Gaming Revenue (GGR) — under the theory that the rest of the pooled money belonged to players and was merely held in trust. The GST Council, in its 50th and 51st meetings in July and August 2023, recommended that the entire face value of bets in online money gaming, casinos and horse racing be taxed at 28% as "actionable claims" arising from betting and gambling, without distinguishing between games of skill and games of chance.

The constitutional question framed: Whether Parliament, under Article 246A of the Constitution (which empowers both Parliament and State legislatures to make laws on GST), could include "online money gaming" within the meaning of "betting and gambling" and tax the full face value of stakes as an "actionable claim," and whether the 2023 amendments could apply retrospectively to transactions before 1 October 2023.

The statutory question framed: Whether organised online gaming platforms, especially those offering games of skill like rummy and fantasy sports, were merely "intermediaries" facilitating peer-to-peer transactions (in which case GST would be only on their commission) or were themselves "suppliers" of actionable claims (in which case GST would be on the full pooled amount).

The Court's answer: Justices Pardiwala and Mahadevan answered all three questions in favour of the Revenue. The Court held that the levy is constitutionally valid under Article 246A, does not violate Articles 366(12) (definition of goods) or 366(12A) (definition of GST), and that gaming operators are suppliers, not intermediaries. The Bench observed that "mere commercial hardship, reduction in profitability, or increased tax incidence cannot by itself render a fiscal measure unconstitutional."

Definition under the Transfer of Property Act, 1882: Section 3 of the Transfer of Property Act defines an "actionable claim" as a claim to any debt (other than a debt secured by mortgage of immovable property or by hypothecation/pledge of movable property) or to any beneficial interest in movable property not in the possession (actual or constructive) of the claimant, which the civil courts recognise as affording grounds for relief. Simply put, it is an enforceable right to receive something in the future.

Treatment under GST: The CGST Act, 2017, in Section 2(52), defines "goods" to include "actionable claims," but Schedule III of the Act (which lists activities that are neither supply of goods nor services) excludes most actionable claims from GST. However, "lottery, betting and gambling" were carved out as an exception — meaning these specific actionable claims are taxable.

The August 2023 amendments: Through the CGST (Amendment) Act, 2023, the Centre inserted Schedule III-A and amended Section 2(80) to specifically define "online money gaming" as a game in which a player pays money or money's worth with the expectation of winning money or money's worth, irrespective of skill or chance. The valuation rules under Rule 31B of the CGST Rules now mandate that GST is to be computed on the total amount paid or payable to or deposited with the supplier by the player, not on the platform fee.

Court's reasoning: The Bench held that when a player deposits money in a pool on a gaming platform, the player acquires a "contingent beneficial interest in moveable property" — that is, the right to win the prize money if the uncertain outcome favours them. This contingent interest squarely fits the definition of an actionable claim under Section 3 of the Transfer of Property Act. Hence, organised online gaming creates "taxable supplies" within the meaning of Section 7 of the CGST Act.

Origin of the doctrine: Indian gambling law has traditionally distinguished between "games of skill" (permitted) and "games of chance" (prohibited). The Public Gambling Act, 1867, the bedrock of colonial-era gambling regulation, exempts games of "mere skill" from criminal liability. Since gambling falls under Entry 34 of the State List (Seventh Schedule), States have framed their own laws largely following this distinction.

The preponderance test — State of Bombay v. R.M.D. Chamarbaugwala (1957): The Supreme Court held that competitions where "success depends to a substantial degree on skill" do not constitute gambling, even if some element of chance exists. This was the foundational "preponderance of skill" test.

State of Andhra Pradesh v. K. Satyanarayana (1968): The Supreme Court declared rummy to be a game of skill, observing that although the initial distribution of cards is by chance, the play of the game requires considerable skill in holding and discarding cards.

Dr. K.R. Lakshmanan v. State of Tamil Nadu (1996): The Supreme Court recognised horse racing as a game of skill and crystallised the "predominance test" — a game is one of skill if skill predominates over chance.

High Court extensions to online games: The Punjab & Haryana High Court (Varun Gumber v. UT of Chandigarh, 2017), the Bombay High Court (Gurdeep Singh Sachar v. Union of India, 2019), and the Madras High Court (All India Gaming Federation v. State of Tamil Nadu, 2023) extended this protection to online fantasy sports and online rummy, holding them as protected trade activities under Article 19(1)(g).

The 2026 Supreme Court departure: The Bench has now drawn a crucial distinction. It has clarified that the skill-versus-chance doctrine continues to apply for criminal liability under State gambling laws, but it does not apply for the limited purpose of GST. The Court reasoned: "The essential element of betting and gambling lies in staking money or money's worth upon uncertain outcomes. The character of betting and gambling does not depend exclusively upon whether the underlying activity is a game of skill or a game of chance, but upon the existence of stakes placed upon uncertain future contingencies." Justice Pardiwala further observed that Article 19(1)(g) protects games of skill, but "when the element of betting and gambling enters the picture, the nature of the game ceases to be of relevance."

Concept: Retrospective taxation is the application of a new tax law to transactions that were completed before the law came into force. While Parliament has the constitutional power to legislate retrospectively, courts have generally frowned upon retrospective tax demands because they undermine business certainty and the rule of law.

The contention of gaming companies: Companies argued that before 1 October 2023, the legal position — based on Karnataka High Court rulings and several precedents — was that games of skill were not "betting and gambling," and hence only 18% GST on GGR was payable. To now demand 28% on the full face value for past years, they argued, was confiscatory and violated Article 14 (right to equality, including the doctrine of legitimate expectation).

The Court's view: The Bench held that the 2023 amendments were "clarificatory" — they did not create a new tax liability but merely clarified what was already taxable. Therefore, the tax demands raised for periods before October 2023 are valid. The Bench accepted the Government's stand that betting and gambling on actionable claims had always been taxable at 28% under Schedule III.

Historical context: India's retrospective tax history famously includes the Vodafone case and the 2012 retrospective amendment to Section 9 of the Income Tax Act, 1961, which was eventually rolled back by the Taxation Laws (Amendment) Act, 2021. The present verdict represents a reversal of that trend, with the highest court endorsing retrospective indirect taxation in a sensitive sector.

Enactment and journey: The Promotion and Regulation of Online Gaming Bill, 2025 was introduced in the Lok Sabha by Union Minister of Electronics and Information Technology Ashwini Vaishnaw on 20 August 2025, passed by the Lok Sabha the same day, passed by the Rajya Sabha on 21 August 2025, and received Presidential assent on 22 August 2025. The PROG Rules, 2026 were notified on 22 April 2026 and the Act came into force on 1 May 2026.

Three-fold classification of online games: The Act classifies online games into three categories: (a) online money games — which are completely prohibited; (b) online social games — which are permitted with registration; and (c) e-sports — recognised as legitimate competitive sport under the National Sports Governance Act, 2025.

Complete ban on online money games: Section 5 of the Act prohibits the offering, advertising, facilitation or financing of any online money game. Crucially, the ban applies irrespective of whether the game is one of skill or chance — eliminating the very distinction the industry had relied upon for decades.

Online Gaming Authority of India (OGAI): The Act establishes the OGAI as an attached office of the Ministry of Electronics and Information Technology (MeitY), headquartered in Delhi. The OGAI is empowered to register e-sports and social games, classify games, hear user grievance appeals and coordinate with financial regulators.

Penalties: Offering online money games is punishable with imprisonment up to three years and/or a fine up to ₹1 crore. Advertising such games (including by social media influencers) attracts imprisonment up to two years and/or a fine up to ₹50 lakh. Facilitating financial transactions is similarly punishable. Repeat offences attract enhanced punishment of up to five years' imprisonment and ₹2 crore fine. Offences are cognizable and non-bailable, and authorised officers can search and arrest without warrant.

Banking and payment ban: Banks and financial institutions are prohibited from processing payments related to online money gaming platforms. Authorities under Section 69A of the IT Act, 2000 can block unlawful gaming platforms.

Interaction with the GST verdict: The PROG Act bans the activity going forward, while the GST verdict revives massive tax demands for past activity. Together, they impose what experts have called a "twin shock" — the sector has lost both its future business model (banned by PROG Act) and faces crippling backward tax liability (revived by the GST verdict).

Constitutional position: "Betting and gambling" is Entry 34 of the State List (List II) of the Seventh Schedule, making it primarily a State subject. However, post-GST, the taxation of betting and gambling falls under Article 246A which empowers both Parliament and States to legislate on GST. Further, online activities involve inter-State commerce and information technology — subjects in the Union List — giving the Centre a constitutional foothold to regulate online gaming.

The colonial inheritance: The Public Gambling Act, 1867 is the basic central legislation criminalising the running of "common gaming houses" while exempting games of "mere skill." States adopted, amended or replaced this law over time — for example, Goa permits casinos, Sikkim and Nagaland have legal online skill games licensing regimes, while Tamil Nadu, Telangana, Andhra Pradesh and Karnataka attempted blanket bans on online gambling and were struck down by their respective High Courts.

State legislative experiments and judicial reversals: Tamil Nadu enacted the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022, banning online rummy and poker. The Madras High Court struck it down in 2023, holding that skill games were protected under Article 19(1)(g). Karnataka and Telangana faced similar setbacks. Today's Supreme Court verdict has, however, upheld these State laws — a significant federal moment.

The current verdict's federalism dimension: By accepting concerns raised by Tamil Nadu and Karnataka on public health, public order, addiction and suicides, the Supreme Court has effectively endorsed a strong state-protective approach toward online gambling, even at the cost of overriding existing High Court rulings.

Market size: India became the world's largest gaming market by user base in 2023, with 568 million gamers and 9.5 billion app downloads. The total Indian gaming market was valued at $3.7 billion in 2024, with projections of $8.6 billion by 2028 (NITI Aayog/FICCI-EY estimates). India accounts for nearly 20% of the global gaming community by users, but only about 1.1% of global gaming revenue.

Real-money gaming share: Before the ban, real-money gaming contributed roughly $2.5 billion to industry revenue. Major players included Dream11 (over 220 million users, valued at $8 billion in 2023), Mobile Premier League (MPL, $2.3 billion valuation), Games24x7 (RummyCircle, My11Circle), Gameskraft (Rummy Culture, Gamezy), Delta Corp (Adda52, casinos in Goa), and Nazara Technologies (publicly listed).

Investment flows: The sector attracted around $2.8 billion in foreign and domestic investment between 2021 and 2024, accounting for nearly 3% of India's startup funding.

Job losses and shutdowns: After the PROG Act, industry estimates suggest over 7,000 jobs lost and over ₹7,000 crore in writedowns within 90 days of passage. Games24x7 cut around 70% of its workforce; MPL laid off about 60% (nearly 300 employees in India); Gameskraft reduced its workforce from 600 to under 100. Flutter Entertainment booked a $556 million impairment in Junglee Games after suspending real-money rummy.

Tax notices outstanding: As of December 2023, 71 show-cause notices for GST evasion totalling ₹1.12 lakh crore had been issued. By 2026, the cumulative demand had risen to approximately ₹2.5 lakh crore including interest and penalties. The largest individual notices were against Dream11 (~₹28,000 crore — at the time the largest single GST notice in Indian history), Delta Corp (₹16,822 crore plus additional notices of ₹23,204 crore), Gameskraft (₹21,000 crore) and Games24x7 (~₹20,000 crore).

Public health and addiction: The Government cited rising cases of gambling addiction, financial distress, family breakdowns and suicides linked to online money gaming. NIMHANS, Bengaluru, has reported a rising number of treatment-seeking patients for gaming and gambling addiction.

Youth and underage exposure: A significant proportion of online gaming users are below 18, despite age-gate rules. The Government has emphasised the need to protect vulnerable populations.

Financial integrity concerns: The Ministry of Home Affairs and the Enforcement Directorate flagged that gaming platforms have been used for money laundering (via digital wallets and cryptocurrencies), illicit fund transfers and Hawala-type circumvention of foreign exchange laws (FEMA, 1999).

National security: Offshore gaming and betting platforms operating from jurisdictions like the Caribbean and Southeast Asia have been linked to misuse for terror funding, hostile intelligence operations and as messaging cover for organised crime. The Government has cited intelligence inputs suggesting that some platforms served as off-shore data-collection points.

Tax circumvention and the illegal market: A significant portion of the real-money gaming activity migrated to offshore unregulated platforms after the 28% GST levy, as flagged by the FICCI-EY M&E Report 2025. The Government's response, as embodied in the PROG Act, is a complete prohibition rather than calibrated regulation.

For the gaming companies: Even though most real-money platforms have already exited the business, the revived ₹2.5 lakh crore tax demand will mean prolonged adjudication, possible asset attachment, freezing of bank accounts, and insolvency proceedings. As Tax Partner EY India Saurabh Agarwal observed, the immediate burden cannot be passed on to consumers because the relevant transactions have already taken place; companies must absorb the demand from accumulated reserves and equity.

For the Government's revenue: Although the verdict is a legal victory, the actual collection of ₹2.5 lakh crore is uncertain. Most major companies do not have cash flows even close to the demanded amount. The verdict, therefore, may be more about establishing the legal principle than about realising actual collections.

For consumers and investors: The dual blow (ban + retrospective tax) signals that India's regulatory environment for high-risk consumer-facing digital sectors can change abruptly. This raises wider concerns about regulatory predictability for foreign investors, especially in light of the earlier Vodafone retrospective tax controversy.

For the e-sports and social gaming sector: With money gaming banned, future industry growth will depend on free-to-play, advertising-supported, and skill-based competitive e-sports formats. NVIDIA's launch of cloud gaming in India (November 2025) and Krafton's Battlegrounds Mobile India revival indicate the sector's pivot toward casual and core gaming with international IPs.

For pending litigation: The constitutional challenges to the PROG Act, 2025 — currently pending before the Supreme Court Bench of Justices J.B. Pardiwala and K.V. Viswanathan — will now be heard against this new doctrinal background. Given the Court's expansive reading of "betting and gambling" in this judgment, the PROG Act's prohibition framework appears legally fortified.

Constitutional status: The GST Council is a constitutional body established under Article 279A, inserted by the 101st Constitutional Amendment Act, 2016. It is the apex body recommending all major GST decisions to the Centre and States.

Composition: It is chaired by the Union Finance Minister, with the Union Minister of State for Finance and the Finance/Taxation Ministers of all States and Union Territories with legislatures as members. The Vice-Chairperson is chosen by the State members.

Voting weights: The Centre has one-third weight, while all States together have two-thirds. Decisions require a three-fourths majority of weighted votes — making the Council a model of "cooperative federalism" envisaged by B.R. Ambedkar.

Online gaming decisions: The 50th GST Council meeting (11 July 2023) and the 51st meeting (2 August 2023) under the chairpersonship of Union Finance Minister Nirmala Sitharaman unanimously recommended 28% GST on full face value for online gaming, casinos and horse racing, irrespective of skill or chance — the decisions now upheld by the Supreme Court.

Supreme Court's recent pronouncement on the Council: It is worth noting that in Union of India v. Mohit Minerals (2022), the Supreme Court had held that the GST Council's recommendations are not binding but only persuasive, and both Centre and States retain sovereign legislative power. The current verdict implicitly reinforces the legitimacy of the Council's policy choices.

United Kingdom: The UK Gambling Commission licenses online gaming under the Gambling Act 2005. Gross Gaming Revenue is taxed at 21% Remote Gaming Duty — far lower than India's 28% on full face value. The UK maintains a clear distinction between regulated gambling and skill-based games.

United States: Online sports betting and fantasy sports are regulated state-by-state since the Supreme Court's 2018 decision in Murphy v. NCAA. Taxation is on operator revenue, not the full bet amount.

European Union: Most EU jurisdictions tax on GGR or a hybrid model, with effective tax rates between 15–25% on revenue.

Singapore: GST is at 7–9% on the operator's commission, not on stakes.

The Indian approach is, therefore, among the most aggressive globally — taxing at 28% on the full pooled amount and banning real-money games outright. This may push activity towards offshore unregulated platforms unless effective enforcement under the PROG Act is achieved.