India’s online gaming industry has suffered a major setback after the Supreme Court upheld a 28% Goods and Services Tax (GST) on the full-face value of online bets. Companies face show-cause notices over alleged GST evasion of around Rs 2.5 lakh crore including penalties.
In October 2023, the GST Council imposed a 28% tax on the full-face value of online gaming bets. The industry has argued that the tax should instead be calculated on gross gaming revenue rather than the total stake value.
The companies had previously received show-cause notices alleging GST evasion of Rs 1.12 lakh crore. As the GST Act allows for a penalty of up to 100% of the tax demand, total liability rises to around Rs 2.5 lakh crore.
In June last year, the court stayed GST proceedings against 49 gaming firms linked to retrospective demand notices and extended interim protection for a further three months.
A bench of Justices J B Pardiwala and R Mahadevan has now ruled that there is no constitutional infirmity in levying GST on online games and has upheld its validity. The court also highlighted concerns around addiction to online gambling, stating that it is causing social disruption.
It held that the government has the power to ban such activities in the interest of public health and that companies cannot claim a fundamental right to carry on such trade or business.
The judges also upheld decisions by the Tamil Nadu and Karnataka governments to prohibit and criminalise online games played for money or stakes. It also rejected arguments from online companies that betting on games of skill falls outside state legislative powers.
The ruling could also influence the Supreme Court’s upcoming hearing on the Centre’s 2025 law banning online betting and gambling, whose validity is currently under review.
India’s Promotion and Regulation of Online Gaming (PROG) Act 2025 came into force on 1 May 2026 - the law prohibits online money games, while social games and esports are allowed to operate subject to regulation and registration
