GST on Online Games Explained: How Tax Rules Are Toying with India’s Gaming Firms

Paytm’s subsidiary First Games Technology Pvt Ltd on 28 April 2025 received a show-cause notice (SCN) from the Directorate General of GST Intelligence (DGGI), proposing a GST liability of ₹5,712 crore plus interest and penalties.

The notice claimed liability for the period January 2018–March 2023, of 28 % on the total entry amount as opposed to the 18 % GST currently paid on platform fees (revenue) earned by gaming companies.

First Games reportedly plans to file a writ petition challenging the SCN, contesting the retrospective application of the GST amendment effective 1 October 2023 and prior GST interpretations. The company will also seek interim relief similar to that granted to others in the gaming industry.

This is not the first instance of an online gaming company receiving a retrospective GST notice. By December 2023, 71 notices totalling ₹1.12 lakh crore had been issued to online gaming companies and casinos.

Affected gaming companies, including Games 24x7, Head Digital Works, Baazi Networks and the E-Gaming Federation, promptly challenged these notices by filing 51 writ petitions in the Supreme Court (SC), contesting the imposition of GST.

The Supreme Court (SC) granted interim relief to the companies by staying all related proceedings and scheduled a final hearing, most recently set for 5 May 2025.

The overall dispute is based on a fundamental disagreement over whether GST should be levied at 18 % on the gross gaming revenue (platform fee) or at 28 % on the total entry amount (face value), with significant financial and regulatory implications for the online gaming industry.

But where did the dispute stem from?

The Background

In 2017, India introduced the Goods and Services Tax (GST), consolidating multiple indirect taxes into a unified, destination-based tax framework. In the initial framework, the online gaming sector was divided into two categories: ‘Games of Skill’ and ‘Games of Chance’.

Games of skill, such as fantasy sports and certain card games, were taxed at 18 % GST on gross gaming revenue (GGR) (stakes minus payouts). Games of chance, including casino bets and lotteries, were subject to 28 % GST on the full face value of bets.

However, games like poker and certain fantasy sports, which blend elements of skill and chance, fell in the grey areas, leading to confusion in their categorisation. As a result, the GST Council’s Law Committee noted numerous instances of tax-related litigation and inconsistent tax treatment.

To solve this issue, the GST Council in October 2023 amended the Central Goods and Services Tax Act to levy 28 % GST on the total entry fee (face value of bets) for online gaming irrespective of whether the game involves skill or chance. The amendment applies retrospectively to August 2017.

Series of Notices & SC Intervention

Following the amendment, the DGGI began issuing show-cause notices to several online gaming firms under Section 74 of the CGST Act, demanding GST at 28 % on the full face value of bets retrospectively.

By December 2023, 71 notices aggregating to ₹1.12 lakh crore had been dispatched to online gaming companies and casinos. Major online gaming platforms, including Dream11, Games24x7 (operator of RummyCircle and My11Circle), Nazara Technologies, MPL, WinZO and Paytm’s First Games received show-cause notices from the DGGI.

Dream11 and Games24x7 challenged these demands in the Bombay High Court, while First Games plans to file a writ petition seeking similar relief. Several companies had also approached the Supreme Court, challenging the retrospective tax imposition and the interpretation of Rule 31A of the CGST Rules.

On 13 January 2025, the Supreme Court consolidated all cases related to GST on online gaming and issued an interim stay on all GST notices, prohibiting coercive recovery actions until the petitions are resolved. The bench, led by Justices J.B. Pardiwala and R. Mahadevan, acknowledged concerns from both the gaming industry and the revenue department, scheduling a substantive hearing for 5 May 2025.

Perspectives: Gaming Firms vs GST Authorities

GST authorities argue that Rule 31A mandates uniform taxation for games of skill and chance to ensure clarity, prevent underreporting and halt revenue leakages.

They justify the retrospective application from August 2017 as essential for increasing public revenue, citing a five- to six-fold surge in collections post-October 2023. They emphasise that the GST Council’s amendment has full legal backing, leaving businesses to challenge its retrospective effect through litigation.

On the other hand, gaming companies argue that legitimate skill-based games, such as rummy, poker and fantasy sports, should be taxed at 18 % on gross gaming revenue, consistent with international norms, rather than on face value.

They caution that retrospective tax demands exceeding ₹1 lakh crore negatively impact cash flows and investor confidence, potentially destabilising the entire sector. Additionally, they contend that retroactive levies undermine legal certainty and established precedents distinguishing games of skill from games of chance.