CAM Comment: India’s online real-money gaming industry, once hailed as India’s next digital sunrise sector, now finds itself at a crossroads, caught between a sweeping ban under the Online Gaming Act, 2025, and a trillion plus rupee tax battle in the Supreme Court. The distinction between “games of chance” or “gambling” and the “games of skill”, established through years of litigation, now faces a knockout blow. A potential judicial somersault could result in retrospective GST demands, while the introduction of future prohibition could shut down future business models. This blog analyses the great gamble row unfolding, and what it means for founders, investors, and the future of India’s digital gaming industry.
India’s online real-money gaming industry has always operated on tricky terrain.
With its rapid growth, especially during the COVID years, sustained despite a constantly shifting legal backdrop of state-level bans and legal challenges, founders (and their investors) built large, profitable businesses, on the back of a reassurance in the fundamental validity of their business model derived from a string of legal decisions dating back to the 1950s, which held that online real-money games of skill were legally distinct from gambling, and constituted protected commerce. The stillborn Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023,[1] rules proposed by the Ministry of Electronics and Information Technology (MIETY), held out hope of an effective, balanced co-regulatory framework for the space, which would allow the industry to truly bloom.
Within less than 72 hours of August 19, 2025, that hope was shaken, and perhaps irrevocably shattered.[2] The Promotion and Regulation of Online Gaming Act, 2025 (“OG Act”), atypically drafted by MEITY, with no public consultation, sped through both Houses of Parliament and received presidential assent, is now pending implementation.
It imposes a blanket prohibition on the conduct, funding, or advertising of all real-money online games, including, expressly, online real-money games of skill. Shocking as this was, to those tracking the regulation of emerging sectors in India, a curious pattern in discernible, at least in hindsight. As has been the case with other tricky sectors, the taxman was the horseman for this apocalypse as well.
The GST Litigations
In 2022, notice for sums of up to INR 21,000 crores was issued to an operator of online real-money games by the Directorate General of GST Intelligence on the basis that their operations would be taxed (on the entire value of amounts bet placed through its platform between 2017 and 2022) at 28 per cent as betting and gambling.
Indeed, at the time, the approach of the GST council, equating games of chance with games of skill for taxation purposes, was argued to be arbitrary, confiscatory, and devoid of jurisdiction.
However, in October 2023, the Supreme Court stayed the High Court’s ruling. Since then, developments have moved swiftly; the Government has pressed ahead with enforcement of the amendment, and tax authorities have advanced adjudication in several cases. At the same time, notices to gaming companies have escalated significantly in quantum.
The Supreme Court’s long-awaited decision on whether these arguments hold water were eagerly awaited by India’s gaming industry, in the hope that these look-back tax claims, which would be an existential threat to several operators, would be stayed.
It is somewhat ironic, therefore, that just after the Supreme Court wrapped up marathon hearings on the GST treatment of such platforms, where tax demands currently exceed a staggering INR 1 trillion loom and may even exceed the net worth of gaming companies, the online gaming industry faces prohibition going forward. This will apply regardless of how the Supreme Court decides the GST cases.
For an industry once feted as India’s next digital sunrise sector, the combination of retrospective GST battles and a prospective statutory ban may make for a knockout one-two punch.
The New Reality
When the OG Act is implemented, all games, including formats previously permitted as games predominantly based on skills, such as rummy, poker, or even sport or quiz-based formats, where players stake money or “other stakes” (virtual/real tokens, credits, or coins equivalent or convertible to money) with the prospect of winning money or “other enrichments” will stand prohibited when played online.[3]
E-sports, recognised under the National Sports Governance Act, 2025, based on rules approved by an Authority under the OG Act, where outcomes depend entirely on factors like physical dexterity, mental agility, strategic thinking, or other similar skills of the players, can be conducted as multiplayer tournament formats, with participation fees, and prize money for winners.[4]
“Social Games” can be played for entertainment, recreation or skill-development purposes, including by paying subscriptions or one-time fees, where no winnings are permitted.[5]
The OG Act offers no “middle path” and instead reflects a legislative choice to bring all real-money formats to an immediate halt. By doing so, it collapses a body of jurisprudence that had, for decades, treated skill-based games differently from gambling, rendering earlier jurisprudence largely academic, even when it may be relevant for the current GST case pending before the Supreme Court.
The GST Battle before the Supreme Court
The pending proceedings before the Supreme Court in Gameskraft Technologies Pvt. Ltd. centres on whether games such as rummy, previously recognised as predominantly skill-based, can nonetheless be treated as “gambling” for the purposes of goods and services tax.
The pending matter carries significant financial implications for operators and stakeholders in the gaming industry, as it will determine the treatment of liabilities accrued in the years prior to 2025, when such formats (predominantly skill-based games) were still permitted under the prevailing frameworks.
Given that the OG Act has already resolved the question for the future by prohibiting all stake-based games, whether of skill or chance, the Supreme Court’s ruling will, therefore, not affect the prohibition under the OG Act itself. It will, however, decide the “tax treatment” of these games, especially how historic revenues are taxed, i.e., whether GST applies only to platform fees, as argued by the gaming platforms, or to the entire value of stakes, as maintained by the Revenue.
The gaming platforms have argued that they merely provide technology to facilitate play between users, holding player funds in escrow, and that their true revenue is limited to platform fees. On this basis, they contend GST should be levied at 18 per cent on the fee, not on the entire prize pool. They challenge Rule 31A of the CGST Rules and the recent amendments, which removes the concept of games of skill vis-à-vis chance, as unconstitutional and beyond the scope of the CGST Act since the redistribution of taxing winnings to players has no nexus with the actual supply of services. Relying on judicial precedents distinguishing “games of skill” from “games of chance,” they maintain that rummy, fantasy sports, and similar games cannot be equated with lotteries or betting. They also resist the retrospective application of the 2023 amendment to the GST laws, arguing that businesses operated for years on the understanding that their services attracted 18 per cent GST, and retrospective demands now running into crores violate fairness, certainty, and constitutional protections.
The Revenue defends the 28 per cent tax and retrospective amendments as a clarification of the existing law. It argues that once money is staked, even skill-based games fall within the definition of gambling. According to the Revenue, Rule 31A validly requires GST on the entire bet value since participation fees and prize pools are inseparable. The state also invokes public policy, online gaming poses addiction and financial risks, especially for young players, and taxing the entire stake at a high-rate acts as a deterrent. In the Revenue’s view, uniform treatment of all online games ensures regulatory clarity and prevents revenue leakage.
The Supreme Court’s verdict will rule on two key issues: (1) whether online rummy and similar formats, though previously recognised as skill-based in judicial precedent, can nonetheless be classified as “betting and gambling” for GST purposes when played for stakes and (2) whether participation fees are actionable claims or simply service charges. A possible outcome is a middle path, upholding the Parliament’s power to impose a 28 per cent levy prospectively from October 2023, while striking down previous demands.
The Court may also reaffirm the “dominant skill” test, excluding games like rummy and fantasy sports from gambling and limiting GST to platform fees. The verdict will determine whether GST applies only to platform fees, as operators contend, or to the full value of stakes, the Revenue has maintained.
What Next for the Industry? Pivot, Restructure, or Perish
For companies navigating the current GST regime and the OG Act, the way forward may well depend on the outcome of the GST proceedings.
Should they be decided adversely (including for the entities in question), there may be little appetite or indeed capital to address the new OG Act.
Should the Supreme Court decide favourably though, even in part, gaming operators may be tempted to challenge the OG Act on similar grounds, in that its enactment constitutes an unreasonable arbitrary restraint on their protected business, in addition to other challenges including legislative competence, and the constitutionality of certain parts of the act that relate to arrest, blocking, searches, and seizures.
Pending a successful challenge, operating revenue models built on prize pools or stake-based formats will need to be recast, particularly since payment platforms and advertisers will hesitate to engage with any format that risk running afoul of the OG Act.
In addition to “free-to-play” models, operators may also offer “one-time” subscriptions or memberships to games and experiment with non-monetary rewards that are not convertible or equivalent to money, such as education courses, collectibles, coupons, or memberships. In doing so, they will have to examine whether they are subject to GST at the highest slab of 28 per cent and whether the rewards will constitute “other stakes” under the OG Act.
The valuation of such rewards for GST purposes, the availability of input tax credit, and their disclosure in returns would also have to be carefully analysed. The grey zone, therefore, remains treacherous.
“E-sports” under the OG Act operating clearly within sanctioned multiplayer competitive formats with appropriate recognition may provide the safest way forward here, while not being entirely free of GST ambiguity.
Crucially, a careful, game-by-game assessment is required.
Finally, for operators servicing from India, new questions arise around whether Indian operations should be kept “clean” by hosting only free-to-play, social, or e-sports formats, while offshore entities run real-money games for international players.
Such structuring will throw up new issues such as whether foreign businesses may be managed from offices in India without triggering domestic GST liabilities. Each of these models presents unique legal and tax risks, and companies must weigh them carefully before moving forward.
Concluding thoughts
For businesses, both pending and after the GST decisions, the challenge is restructuring responsibly, pivoting into permissible categories and exploring compliant markets and formats while legal uncertainties persist.
The Supreme Court’s ruling on GST, coupled with the inevitable constitutional litigation against the OG Act, will decide the final contours of this sector. But regardless of the outcome, it is certain that the online gaming story in India has entered its most dramatic chapter yet; an industry that only yesterday was hailed as a sunrise sector now finds itself under a gathering storm, crippled by a single legislative blow. The great gamble, it seems, has only just begun.
For further information, please contact:
S.R. Patnaik, Partner, Cyril Amarchand Mangaldas
sr.patnaik@cyrilshroff.com
[1] Information-Technology-Intermediary-Guidelines-and-Digital-Media-Ethics-Code-Rules-2021-updated-06.04.2023-.pdf.
[2] Bill_Text-Online_Gaming_Bill_2025.pdf.
[3] Section 5, OG Act.
[4] Section 2(c), OG Act.
[5] Section 2(i), OG Act.
