GST on Online Gaming: 40% Rate, Gameskraft Ruling and Prohibition

GST on Online Gaming in India: From 28% to 40%, Games-kraft and the Post-Prohibition Legal Position

Summary: The taxation of online gaming has undergone a significant transformation in India. What began as a dispute over whether skill-based gaming platforms were supplying taxable services evolved into a larger controversy concerning betting and gambling, actionable claims, valuation, delegated legislation and constitutional competence. The Central Goods and Services Tax (Amendment) Act, 2023 introduced specific definitions of “online gaming”, “online money gaming” and “specified actionable claims”, while Rule 31B of the Central Goods and Services Tax Rules, 2017, provided a special valuation mechanism for online gaming. These changes took effect from 1 October 2023. The GST Council had recommended taxation at 28% on the full value of the amount paid or deposited by the player, irrespective of whether the underlying game involved skill or chance.

The legal position changed further with the Supreme Court’s decision in Directorate General of Goods and Services Tax Intelligence (HQS) v. Gameskraft Technologies Pvt. Ltd. & Ors., 2026 INSC 595, decided on 27 May 2026. The Court held that online gaming transactions involving stakes upon uncertain outcomes give rise to actionable-claim interests falling within the GST framework; that gaming platforms themselves may constitute the suppliers; that the amount staked constitutes consideration; and that Rule 31B provides the applicable valuation mechanism. The Court upheld the relevant GST provisions and rejected constitutional challenges to the levy. It also held the 2023 amendments to be clarificatory and retrospective in the manner set out in the judgement.

The rate, however, is no longer 28%. Pursuant to the 56th GST Council meeting, the GST rate for specified actionable claims, including online money gaming, was increased from 28% to 40% with effect from 22 September 2025.

At the same time, India’s regulatory framework moved in a different direction. The Promotion and Regulation of Online Gaming Act, 2025, and the accompanying Rules, brought into force from 1 May 2026, prohibit online money games and online money gaming services while creating a regulatory framework for e-sports and online social games.

The result is an unusual legal position: a tax framework expressly governing online money gaming coexists with a later regulatory statute prohibiting the activity itself. The question is therefore no longer merely whether online gaming is taxable, but how the GST regime operates alongside prohibition, particularly for historical transactions, pending demands and transactions conducted in violation of other law.

1. Introduction

For several years, the taxation of online gaming was located at the intersection of technology, gambling law and indirect taxation. The central dispute was deceptively simple: when a player deposits money on an online gaming platform, should GST be charged only on the amount retained by the platform as a fee or commission or on the amount paid or deposited by the player for participation?

The dispute became more complicated because many online gaming operators maintained that games such as rummy and fantasy sports were predominantly games of skill and therefore could not be treated as betting or gambling. On that basis, operators argued that the platform was supplying a taxable service and that GST should apply to its platform fee rather than to the players’ stakes. This approach stood against the Revenue’s position that once money or money’s worth was staked upon an uncertain outcome, the transaction fell within the statutory framework governing betting and gambling. The controversy ultimately reached the Supreme Court in a batch of proceedings involving online gaming operators, fantasy sports platforms, casinos and related businesses.

The legal landscape has since changed twice: first through the 2023 GST amendments and later through the Supreme Court’s Gameskraft judgement in May 2026. In addition, the rate applicable to specified actionable claims was increased to 40% from 22 September 2025. Most significantly, from 1 May 2026, the Promotion and Regulation of Online Gaming Act, 2025, prohibited online money gaming altogether.

The present question is therefore one of legal characterisation, taxation and transition: what did GST tax, how was it valued, what did the Supreme Court decide, and what is the relevance of that framework after online money gaming itself has been prohibited?

2. Evolution of GST on Online Gaming

The GST regime initially did not contain the elaborate statutory definitions now associated with online money gaming. Litigation consequently developed around the classification of online gaming transactions and the application of the existing provisions concerning actionable claims, betting and gambling.

A major turning point came in July 2023, when the GST Council recommended a uniform 28% levy on actionable claims supplied in casinos, horse racing and online gaming, irrespective of whether the underlying activity was characterised as a game of skill or chance. The Council also recommended a valuation methodology based on the amount paid or deposited by the player, rather than on each individual bet placed.

Parliament subsequently enacted the Central Goods and Services Tax (Amendment) Act, 2023. With effect from 1 October 2023, the GST legislation introduced specific definitions of “online gaming”, “online money gaming” and “specified actionable claim”. The expression “online money gaming” was defined broadly to cover online gaming in which players pay or deposit money or money’s worth in the expectation of winning money or money’s worth, whether the outcome is based on skill, chance or both.

Rule 31B was simultaneously introduced to provide a specific valuation mechanism for online gaming. The rule linked the value of supply to the total amount paid, payable or deposited with the supplier by or on behalf of the player, subject to the exclusions contained in the rule and its explanation.

The next major development occurred on 27 May 2026, when the Supreme Court delivered its judgement in Gameskraft. The Court’s decision settled several foundational questions concerning the taxable character of online gaming transactions, the role of the operator and the validity of the valuation framework.

3. Statutory Framework

The present GST framework can be understood through a combination of the CGST Act, the CGST Rules and the notifications issued pursuant thereto.

3.1 “Online Gaming” and “Online Money Gaming”

Section 2(80A) defines “online gaming” as offering a game on the internet or an electronic network and includes online money gaming.

Section 2(80B) defines “online money gaming” in terms of payment or deposit of money or money’s worth in the expectation of winning money or money’s worth. The definition expressly provides that the outcome may be based on skill, chance or both and further states that the activity may be permissible or otherwise under any other law.

This final phrase became legally significant because it prevents the GST definition from depending entirely upon whether the underlying activity is lawful under a separate statute.

3.2 “Specified Actionable Claim”

Section 2(102A) introduced the expression “specified actionable claim”. It covers actionable claims involved in or by way of:

• betting;
• casinos;
• gambling;
• horse racing;
• lottery; and
• online money gaming.

The amendment correspondingly modified Entry 6 of Schedule III, which otherwise keeps actionable claims outside the scope of supply.

3.3 The Operator as Supplier

The 2023 amendment also expanded the definition of “supplier” by providing that a person who organises or arranges, directly or indirectly, the supply of specified actionable claims—including a person who owns, operates or manages a digital or electronic platform—would be deemed to be a supplier of such actionable claims.

The provision became important because operators argued that they merely provided technological infrastructure and that the actual gaming transaction occurred between players. The Supreme Court rejected that characterisation in Gameskraft.

4. Online Gaming, Skill, Chance and Betting

The distinction between a game of skill and a game of chance has traditionally occupied an important place in Indian gaming jurisprudence.

Cases such as R.M.D. Chamarbaugwala v. Union of India, State of Andhra Pradesh v. K. Satyanarayana, and K.R. Lakshmanan v. State of Tamil Nadu developed principles for distinguishing gambling from activities substantially dependent upon skill.

That distinction, however, cannot be mechanically transplanted into every statutory context.

In Gameskraft, the Supreme Court drew a distinction between the underlying nature of a game and the separate question of whether money or money’s worth is staked upon an uncertain outcome. The Court held that the essential element of betting and gambling, for the controversy before it, lay in staking money or money’s worth upon an uncertain outcome, even where the underlying activity contains elements of skill.

The significance of this approach can be seen through fantasy sports.

A fantasy sports contest may require participants to use knowledge, statistics and strategic judgement in selecting players. But where participants pay money and stand to obtain monetary winnings depending upon the outcome of the contest, the Supreme Court held that the existence of skill in the underlying game did not by itself take the transaction outside the GST framework.

Thus, the question moved from:

“Is the game a game of skill?”

to the more precise GST question:

“Does the transaction involve money or money’s worth being staked upon an uncertain outcome within an organised gaming framework?”

That distinction is central to understanding Gameskraft.

5. Actionable Claims under GST

One of the most technical issues in the litigation concerned actionable claims.

Section 2(52) of the CGST Act includes actionable claims within the definition of “goods”. At the same time, Schedule III excludes specified categories of actionable claims from the general exclusion from supply.

The validity of including actionable claims within “goods” was challenged on constitutional and statutory grounds. The Supreme Court rejected that challenge, relying upon the established legal understanding that actionable claims can fall within the constitutional and statutory concept of goods.

The Court further examined whether the contingent beneficial interests generated within organised betting and gaming frameworks possess the characteristics of an actionable claim. It held that contingent interests arising from pooled winnings and prize entitlements could satisfy the statutory conception of actionable claims.

This reasoning was important because the taxability of online gaming ultimately depended not merely upon the existence of a digital platform but upon the legal character of the interest created within the gaming transaction.

6. The 2023 Amendments

The 2023 amendments were intended to provide greater statutory clarity to the taxation of online gaming.

Among the principal amendments were:

Section 2(80A): definition of online gaming.

Section 2(80B): definition of online money gaming.

Section 2(102A): definition of specified actionable claim.

Section 2(105): deeming platform operators organising or arranging specified actionable claims to be suppliers.

Schedule III: exclusion of specified actionable claims from the general exclusion applicable to actionable claims.

Rule 31B: valuation of online gaming.

Rule 31C: valuation of actionable claims in casinos.

The Government brought the statutory amendments into effect from 1 October 2023, alongside the associated rules and notifications.

The reforms therefore did more than alter a tax rate. They attempted to settle three linked questions:

What is being supplied?

Who is the supplier?

How is that supply valued?

7. What Exactly Is Being Taxed?

This was perhaps the most consequential issue for the gaming industry.

Consider a simplified example:

A player deposits ₹1,000 into an online gaming account. The player uses ₹200 in one contest, wins ₹350, and later participates in another contest using those winnings.

Under a Gross Gaming Revenue (GGR) approach, the platform might argue that only its retained commission or platform revenue represents the economic amount attributable to the supplier.

Under the statutory approach embodied in Rule 31B, however, the relevant consideration is linked to the amount paid or deposited with the supplier for participation, subject to the rule’s specific treatment of amounts redeployed from winnings.

The Supreme Court rejected the contention that GST should be confined to the operator’s platform fee. It held that the amount staked towards participation constitutes consideration and that the statutory valuation mechanism is determined under Rule 31B.

The Court also held that prize pools, winnings and payouts could not be deducted merely because those amounts were ultimately distributed to participants. The statutory framework did not provide such an exclusion.

8. Valuation under Rule 31B

Rule 31B is critical to understanding the economic impact of the GST regime.

The rule provides that the value of supply in online gaming, including the supply of actionable claims involved in online money gaming, is the total amount paid, payable or deposited with the supplier by or on behalf of the player, including money’s worth and virtual digital assets, subject to the rule and its explanations.

At the same time, the rule prevents repeated taxation of winnings that are simply redeployed without withdrawal. The explanation provides that an amount won and subsequently used for another event without withdrawal is not treated as a fresh amount paid or deposited for the purpose of valuation.

Illustration

Suppose:

• Initial deposit: ₹10,000
• Amount used in the first contest: ₹2,000
• Winnings credited: ₹3,000
• Winnings of ₹3,000 reused without withdrawal

The reuse of those winnings does not, by itself, create another deposit for the purpose of Rule 31B.

This prevents the same monetary value from being treated as a fresh taxable deposit every time it is reused within the gaming ecosystem.

The Supreme Court held that this valuation methodology is legally valid and constitutionally sustainable.

9. Constitutional Challenges

The litigation also raised fundamental constitutional questions.

Article 14

The operators contended, among other things, that treating games involving skill in the same manner as betting and gambling could amount to arbitrary classification.

The Supreme Court rejected the challenge, holding that the statutory distinction adopted by Parliament was not constitutionally impermissible merely because another valuation or classification methodology might have been possible.

Article 19(1)(g)

The operators argued that the levy imposed a disproportionate burden upon their businesses.

However, taxation of an economic activity does not, by itself, amount to an unconstitutional restriction on carrying on a trade or occupation. The relevant question remains whether the levy is authorised by law and whether the constitutional limitations governing fiscal legislation are satisfied.

Article 246A

The competence of Parliament to enact GST legislation concerning goods and services was also challenged.

The Supreme Court upheld the inclusion of actionable claims within the statutory GST framework and rejected the argument that Sections 2(52) and 9(1) travelled beyond Parliament’s constitutional competence.

Article 265

The broader challenge was that tax could be imposed only by authority of law.

The Court found the levy sufficiently grounded in the CGST Act, read with the applicable valuation provisions and rules. It accordingly rejected the constitutional challenge to the levy.

10. The Supreme Court in Gameskraft

The Supreme Court’s judgment in Directorate General of Goods and Services Tax Intelligence (HQS) v. Gameskraft Technologies Pvt. Ltd. & Ors. was delivered on 27 May 2026.

The Court held, in substance, that:

• organised online gaming involving monetary stakes upon uncertain outcomes gives rise to actionable-claim interests within the GST framework;
• the online gaming companies themselves may constitute suppliers, rather than being merely technological intermediaries;
• amounts staked towards participation constitute consideration;
• the applicable statutory valuation mechanism is contained in Rule 31B;
• winnings, prize pools and payouts do not ordinarily qualify for exclusion from taxable value merely because they are subsequently distributed;
• Rule 31A was intra vires the CGST Act;
• the 2023 amendments were clarificatory and explanatory in nature and operate retrospectively in the manner determined by the Court; and
• the constitutional and statutory challenges to the relevant GST provisions, including Rules 31A, 31B and 31C, were rejected.

The Court consequently directed that pending show-cause notices, adjudication proceedings and consequential demands concerning online gaming, fantasy sports and casino transactions should be dealt with in accordance with the valuation framework and principles laid down in the judgment.

The ruling represents a significant shift in the legal understanding of the relationship between gaming activity and GST.

11. Retrospective Operation of the 2023 Amendments

Retrospectivity was a particularly important issue because substantial disputes arose concerning periods preceding 1 October 2023.

The petitioners argued that the 2023 amendments introduced a new tax treatment and therefore could not be used to retrospectively impose a burden that did not previously exist.

The Supreme Court rejected that characterisation. It held that the 2023 amendments did not create a fresh levy or introduce a wholly new taxable event; rather, they provided greater statutory specificity and clarity concerning a framework that already recognised the taxability of actionable claims arising from betting and gambling.

The Court consequently regarded the relevant amendments as clarificatory and explanatory and held them to operate retrospectively in the manner set out in the judgment.

The distinction between substantive legislation and clarificatory legislation is significant here. A genuinely new levy ordinarily raises a much stronger retrospectivity objection than an amendment which merely clarifies an existing statutory position. The Court placed the 2023 amendments in the latter category.

For taxpayers and the Revenue, this means that disputes relating to earlier periods cannot be resolved simply by pointing to the fact that the specific statutory terminology was introduced only in 2023.

12. GST at 40%: The Current Rate Position

A further development occurred before the Gameskraft judgment.

The 56th GST Council meeting recommended an increase in the GST rate applicable to specified actionable claims from 28% to 40%, covering betting, casinos, gambling, horse racing, lottery and online money gaming. The revised rate was made effective from 22 September 2025.

Accordingly, the rate history may be stated as follows:

Period	GST treatment
Prior to 1 October 2023	Disputes largely concerned the scope of the pre-amendment framework and valuation
1 October 2023 to 21 September 2025	28% GST on specified actionable claims under the amended framework
From 22 September 2025	40% GST on specified actionable claims, including online money gaming

The increase to 40% is important because descriptions of the Gameskraft decision as merely a “28% GST judgement” are incomplete when discussing the current legal position. The Court decided the underlying validity and valuation controversy in the context of the earlier rate; the applicable rate subsequently changed through the GST rate framework.

13. The Promotion and Regulation of Online Gaming Act, 2025

Perhaps the most unusual development in the area occurred in 2026.

The Promotion and Regulation of Online Gaming Act, 2025 creates a national framework for online gaming and distinguishes between e-sports, online social games and online money games.

Section 5 prohibits a person from offering, aiding, abetting, inducing or otherwise engaging in an online money game or online money gaming service. Section 6 prohibits advertisements promoting or inducing participation in online money games, while Section 7 restricts financial transactions towards payment for online money gaming services.

The Act defines “online money game” broadly to include online games played by paying fees or depositing money or other stakes in the expectation of monetary or other enrichment, irrespective of whether the game is based on skill, chance or both, subject to the statutory exclusion relating to e-sports.

The Government subsequently operationalised the framework through the Promotion and Regulation of Online Gaming Rules, 2026, which came into force on 1 May 2026. The framework establishes mechanisms for classification, registration and regulatory oversight of online games, while maintaining the prohibition on online money gaming.

Therefore, as of September 2026, online money gaming occupies a fundamentally different position from e-sports and permitted online social games.

14. Taxation and Prohibition: A Legal Interface

The coexistence of GST legislation and the prohibition imposed by the PROG Act creates an important legal distinction.

At first sight, there appears to be a contradiction:

How can an activity be prohibited by one statute and simultaneously described and valued for taxation purposes under another?

The apparent contradiction becomes less difficult when the two statutes are understood as serving different legal functions.

The GST framework determines the tax treatment of transactions falling within its statutory scope. The PROG Act regulates whether a person may lawfully offer or participate in online money gaming.

Importantly, the 2023 GST definition of online money gaming itself states that the relevant activity may be permissible or otherwise under another law.

The Supreme Court also observed in Gameskraft that the civil-law unenforceability of an underlying transaction does not, by itself, invalidate a tax levy where the transaction otherwise falls within the taxing statute.

The PROG Act further provides, in Section 18, that it operates in addition to other laws and, in cases of inconsistency, overrides another Act to the extent of that inconsistency.

Consequently, the GST legislation should not be understood as granting permission to conduct online money gaming. Taxability is not legal authorisation.

The practical significance is now concentrated principally in historical transactions, pending assessments, retrospective tax demands and any transaction that may fall within the GST framework despite being prohibited under another law.

15. Practical Implications and Critical Analysis

15.1 A major shift from GGR to the statutory valuation model

The most important economic consequence of the GST framework is the movement away from taxing only the operator’s retained margin toward a statutory valuation based upon player deposits or amounts paid for participation.

For an operator handling ₹1 crore of qualifying deposits, a 40% GST rate on a taxable value of ₹1 crore would produce a GST component of ₹40 lakh, assuming the amount is treated as taxable value under the applicable valuation rule.

This illustrates why valuation, rather than merely classification, became the central commercial issue in the litigation.

15.2 Skill is no longer a standalone answer under the GST framework

The older debate around whether rummy, fantasy sports or similar formats involved predominant skill cannot, after Gameskraft, by itself resolve GST liability.

The decisive GST enquiry is more closely concerned with the structure of the transaction, the existence of stakes, the uncertain outcome, the actionable claim and the statutory valuation provisions.

15.3 Operators are not necessarily mere intermediaries

The Supreme Court rejected the argument that the gaming platform merely facilitates an arrangement between players.

The Court noted that the platform controls the participation mechanism, pooling of stakes, allocation of participants, gameplay structure, outcome determination, payouts and withdrawals. According to the Court, these features demonstrate that the platform itself plays the role of supplier within the GST framework.

This reasoning may have significance beyond online gaming because it illustrates how GST law can analyse digital intermediaries by reference to the economic architecture of the transaction, rather than only the contractual description adopted by the platform.

15.4 The prohibition does not erase historical tax controversies

The commencement of the PROG Act does not retrospectively eliminate tax questions relating to transactions that took place before the prohibition.

The Supreme Court’s direction that pending show-cause notices and adjudication proceedings be decided according to the principles laid down in Gameskraft means that historical disputes remain legally significant.

15.5 The distinction between lawful gaming and prohibited money gaming

The current regulatory architecture also means that “online gaming” should no longer be treated as a single homogeneous category.

E-sports, educational and social gaming may fall within the permissible regulatory framework, whereas online money games are prohibited under the PROG Act.

Consequently, future tax analysis must first identify what type of gaming activity is actually involved, instead of applying the term “online gaming” indiscriminately.

15.6 Review petitions and the continuing legal debate

The Supreme Court judgement has generated further litigation. Public reporting based on Supreme Court registry information indicated that several major online gaming operators, including Play Games24x7, Junglee Games and Sachiko Gaming, filed review petitions against the May 2026 judgement. Such petitions do not, by themselves, stay or reverse the judgement; until any contrary order is passed, the judgement remains the operative authority.

This is important for practitioners because the existence of a review petition should not be confused with a judicial reversal of the Gameskraft ruling.

16. Conclusion and Way Forward

India’s legal treatment of online gaming has moved through three distinct phases.

The first phase was marked by uncertainty over the classification of online gaming transactions and the relevance of the skill-versus-chance distinction.

The second phase began with the 2023 GST amendments, which expressly brought online money gaming and specified actionable claims within a detailed statutory and valuation framework.

The third phase was shaped by the Supreme Court’s judgement in Gameskraft, which upheld the relevant GST provisions, recognised the role of gaming platforms as suppliers, treated stakes as consideration and approved the statutory valuation mechanism.

But the legal position did not stop there. The applicable GST rate for specified actionable claims was increased to 40% from 22 September 2025, while the Promotion and Regulation of Online Gaming Act, 2025, subsequently prohibited online money gaming from 1 May 2026.

The result is a legal framework in which taxation and prohibition coexist but perform different functions. The GST law determines the fiscal consequences of transactions within its statutory scope; the PROG Act determines whether online money gaming may lawfully be offered or conducted. A tax liability cannot, by itself, be treated as a licence to undertake a prohibited activity.

Going forward, the principal legal questions are likely to concern the treatment of historical transactions, the computation of retrospective liabilities, the effect of the Gameskraft ruling on pending proceedings, and the distinction between prohibited online money gaming and permitted forms of digital gaming.

The online gaming controversy therefore offers a broader lesson for Indian tax law. Digital business models can challenge traditional assumptions about the identity of the supplier, the nature of consideration and the measurement of taxable value. The judicial response in Gameskraft demonstrates that the tax consequences of a digital transaction may turn less on the terminology used by the parties and more on the legal and economic architecture through which the transaction is organised.

For the gaming sector, the question is no longer simply whether online gaming is taxable. The more precise question is which gaming activity is being considered, what transaction the statute recognises, what value the law assigns to that transaction, and what legal regime governs the activity at the relevant point in time.