Real money gaming firms seek GST Council relief after SC cuts Rs 2.5 L crore exposure

The Real Money Gaming (RMG) industry is preparing to approach the GST Council for relief on legacy tax liabilities after the Supreme Court's ruling in the Gameskraft case significantly reduced the sector's potential tax exposure by rejecting the revenue department's valuation methodology that had resulted in demands worth nearly 2.5 lakh crore.

While the judgment has brought substantial clarity on how online gaming transactions should be valued for taxation purposes, industry stakeholders say the ruling has not entirely eliminated legacy tax disputes and are now seeking policy intervention from the GST Council to address liabilities arising from what they describe as an industry-wide interpretational issue.

The Supreme Court's ruling settles a years-long dispute over the valuation of online money gaming transactions under the Goods and Services Tax regime. The court directed tax authorities to recompute pending tax demands using Rule 31B of the Central GST Rules instead of the methodology previously adopted by revenue authorities.

The dispute stemmed from a series of show-cause notices issued to online gaming companies, fantasy sports platforms and casinos. Tax authorities had sought to levy GST at 28% on the face value of every individual bet placed on gaming platforms, effectively treating each wager as a separate taxable event. In the case of casinos, authorities adopted a Gross Bet Value (GBV) approach that included chips repeatedly recirculated during gameplay.

The interpretation resulted in unprecedented tax demands across the sector. The most prominent was a Rs 21,000 crore GST demand issued to Gameskraft, despite the company's reported revenue of approximately Rs 4,650 crore during the relevant period.

In its judgment, the Supreme Court ruled that pending proceedings involving online money gaming should be determined under Rule 31B, which links taxable value to player deposits rather than every individual wager placed thereafter. The court also clarified that winnings reused for gameplay without first being withdrawn and redeposited do not constitute fresh deposits for taxation purposes.

Industry executives say the ruling has substantially reduced the scale of potential liabilities but that many companies still face significant historical tax demands that could affect business operations and investment plans.

"The judgment has removed the existential threat that many gaming companies were facing, but legacy tax demands continue to remain a concern. The industry is likely to seek a pragmatic resolution from the GST Council because these practices were followed uniformly across the sector and were based on a genuine interpretation of the law prevailing at the time," said the founder of a leading online gaming company, requesting anonymity.

Another gaming platform founder said the industry was hoping for a policy solution similar to those provided in other sectors where tax disputes arose due to differing interpretations of regulations.

"The Supreme Court has clarified the valuation issue, but companies have spent years dealing with uncertainty, litigation and regulatory overhang. A structured amnesty or regularisation mechanism for the pre-October 2023 period would help bring closure and allow companies to focus on growth and innovation," the founder said on condition of anonymity.

Gaming industry bodies, including the All India Gaming Federation (AIGF), the E-Gaming Federation (EGF) and the Federation of Indian Fantasy Sports (FIFS), are expected to make representations to the GST Council seeking rationalisation of the tax burden and relief on historical demands.

According to legal experts, the industry may seek a waiver of short-payment liabilities or an amnesty mechanism on the grounds that the dispute involved a sector-wide interpretation of tax provisions rather than deliberate tax avoidance.

Jay Sayta, technology and gaming lawyer, said companies are likely to formally approach the government and the GST Council for relief.

"The companies are definitely planning to approach the government and GST Council to waive off the short payment of tax under Section 11A or other provisions of the CGST Act as the issue was industry-wide, the entire trade followed the same practice and the issue was purely interpretational. We remain hopeful that the GST Council and government will favourably consider the request," Sayta said.

Legal experts noted that the GST Council possesses the constitutional authority to recommend policy measures that could provide relief to the sector, although any such move would require legislative backing.

Shashi Mathews, partner at CMS INDUSLAW, said the GST Council has the authority to recommend an amnesty scheme for historical demands or provide for regularisation based on prevalent industry practices.

"Legally, the GST Council has the constitutional authority to recommend an amnesty scheme on historic demands, or to recommend regularisation of demands on as is where is basis based on prevalent trade practice during the relevant period," Mathews said.

However, he cautioned that any relief would be a matter of policy rather than legal entitlement.

"Given the judicial endorsement, any amnesty scheme for pre-October 2023 liabilities would be a matter of pure executive and legislative policy, not legal entitlement. Gaming federations and companies approaching the GST Council for relief would be seeking a political and policy accommodation — not the vindication of a legal right," he added.

Sonam Chandwani, managing partner at KS Legal & Associates, said industry stakeholders are well within their rights to seek tax rationalisation through the GST Council framework.

"The GST Council, being a recommendatory body under Article 279A of the Constitution, has the power to recommend changes in rates, valuation mechanisms and exemptions. Consequently, gaming federations and industry participants are entitled to make representations seeking rationalisation of the levy or resolution of legacy disputes," Chandwani said.

At the same time, she pointed out that any reduction in tax liability or waiver would require statutory changes.

"While the Council may recommend suitable measures, any reduction in tax liability, waiver or legislative change would ultimately require corresponding amendments under the CGST Act and the relevant notifications. The Council cannot, by itself, retrospectively extinguish liabilities that have already crystallised under existing law unless such relief is backed by statutory amendments enacted by Parliament and the State Legislatures," Chandwani added.

Industry executives argue that a resolution of legacy disputes would remove a major regulatory overhang and help restore investor confidence in a sector that has witnessed funding slowdowns and heightened scrutiny over the past three years.

The GST Council's response to the industry's request is likely to be closely watched, as it could determine whether the Supreme Court's judgment marks merely the end of a legal battle or the beginning of a broader policy reset for India's online gaming industry.