IAS Gyan

Daily News Analysis


11th September, 2023 Polity

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Context: The Karnataka High Court ruled that online skill games played for stakes are not gambling and are exempt from the Goods and Services Tax (GST). However, the Supreme Court has stayed this order, pending a final decision on the matter. This means that, for now, online skill games such as rummy, poker, chess and fantasy sports are subject to the same tax regime as online games of chance like roulette, bingo and lotteries.


  • The Karnataka High Court had ruled that games like rummy, which were considered games of skill, should not be taxed as "betting" and "gambling" under the Goods and Services Tax (GST) Act. Games of skill were subject to a lower GST rate of 19%, while games of chance faced a higher rate of 28%.
  • The Supreme Court (SC) staying the Karnataka High Court's order has significant implications for the taxation of online skill games in India. This decision reverses the Karnataka High Court's earlier ruling, which distinguished between games of chance and games of skill for tax purposes and proposed different tax rates for each.

Online gaming


  • Online gaming is a booming industry in India, with millions of users playing various games on different platforms. However, the legal and tax status of online gaming is not very clear, especially when it comes to distinguishing between games of chance and games of skill.

Games of Chance

  • Games of chance are primarily determined by luck or random events, and players typically have little to no control over the outcome.
  • Random Outcomes: The results in games of chance are unpredictable and influenced by factors beyond the player's control, such as the roll of dice, the spin of a roulette wheel, or the drawing of numbers.
  • No Skill Required: Success in these games does not depend on a player's skill, knowledge, or decision-making abilities. Anyone, regardless of skill level, has an equal chance of winning.
  • House Edge: Casinos and gambling establishments usually have a built-in advantage known as the house edge, ensuring they profit over time. This edge is what allows them to offer such games.
  • Entertainment Value: Games of chance are often played for entertainment and the excitement of uncertainty. They can be thrilling and offer a break from skill-based activities.
  • Common examples of games of chance include slot machines, roulette, lotteries, bingo, and many carnival games.

Games of Skill

  • Games of skill rely on a player's expertise, strategy, and decision-making abilities to influence the outcome. While luck may still play a role, skill is the dominant factor in determining success.
  • Skill Matters: Success in games of skill depends on a player's knowledge, experience, and ability to make strategic decisions. The more skilled a player is, the better their chances of winning.
  • Competitive: Games of skill often involve competition against other players rather than the house. Players compete based on their skill levels.
  • Learning Curve: These games often have steep learning curves, and players can improve their skills over time through practice and experience.
  • No House Edge: Unlike games of chance, there is typically no built-in advantage for the platform or casino hosting the game. The outcome is determined solely by the players' abilities.
  • Examples of games of skill include chess, carrom, rummy, poker, various esports, and sports like golf or billiards.

Why does this distinction matter for taxation?

Tax Rate Differences

  • Under the Central Goods and Services Tax (CGST) Act, 2017, games of chance, such as lottery, betting, and gambling, fall under the category of "actionable claims" as per Entry 6 of Schedule III. Actionable claims are taxed at the highest GST rate of 28%. This higher tax rate is applied to such activities because they are often seen as speculative and associated with potential financial risks for participants.

Ambiguity Regarding Online Games

  • The challenge arises when it comes to classifying online games, particularly those that involve an element of skill. The CGST Act does not explicitly define or classify online games as either lottery, betting, or gambling. This lack of clarity creates ambiguity about whether online games should be subject to the 28% GST rate or not.

Games of Skill

  • Games of skill are generally considered to be outside the ambit of lottery, betting, or gambling. They are distinguished by the fact that player skill, strategy, and decision-making predominantly determine the outcome, with luck playing a lesser role. As a result, these games are often taxed at a lower GST rate, typically 18%, which applies to most services.

Impact on Revenue and Profitability

  • Online Gaming Companies: The difference in tax rates has a substantial impact on the taxation of online gaming platforms. If online games are classified as games of chance, they may be subject to the higher 28% GST rate, which can increase the tax liability for gaming companies and potentially reduce their profitability.
  • Players: For individual players, the tax rate distinction affects the overall cost of participation in online gaming activities. Higher tax rates can reduce the potential winnings or rewards for players, making participation less attractive.

Regulatory Challenges

  • The ambiguity surrounding the classification of online games can create regulatory challenges and disputes. Gaming companies, tax authorities, and legal experts may engage in discussions and legal proceedings to determine the appropriate tax treatment of specific online games.

Economic Impact

  • The taxation of online gaming activities also has broader economic implications. It can influence the growth and sustainability of the online gaming industry, potentially affecting investment, job creation, and consumer behaviour.

What are the implications of the recent developments for online gaming companies and players?

  • The recent developments regarding the classification and taxation of online games in India indeed have significant implications for both online gaming companies and players.

For Online Gaming Companies

  • Tax Liabilities: Online gaming companies face the risk of substantial tax liabilities if their games are classified as games of chance or gambling and taxed at a higher GST rate of 28%. This can impact their profitability and financial viability.
  • Regulatory Uncertainty: The lack of clarity in the legal and tax framework can create regulatory uncertainty, making it challenging for gaming companies to plan and operate effectively. This uncertainty may deter potential investors and partners.
  • Compliance Challenges: Navigating the complex and evolving regulatory landscape can be challenging for online gaming companies. They must ensure compliance with tax laws, data protection regulations, and other legal requirements.
  • Funding and Expansion: Uncertainty in the regulatory environment may hinder the ability of gaming companies to raise funds and expand their operations. Investors may be hesitant to invest in a sector with legal ambiguity.
  • Innovation: The online gaming industry relies on innovation to attract and retain players. Legal and tax uncertainties can stifle innovation, as companies may be reluctant to invest in new game development and technologies.

For Online Gaming Players

  • Higher Taxes: Players may have to pay higher taxes on their winnings or earnings from online games if these are taxed at 28% instead of the lower 18% GST rate. This can reduce the overall returns for players, impacting their motivation to participate in online gaming.
  • Trust and Confidence: The uncertainty in the regulatory framework can erode trust and confidence in online gaming platforms. Players may be concerned about the fairness of the games, the safety of their data, and the legitimacy of the platforms.
  • Consumer Costs: Higher taxes can increase the cost of participation in online gaming, potentially discouraging casual players and affecting the overall user base of online gaming platforms.
  • Legal Protections: Players may seek legal protections and recourse in case of disputes or issues with online gaming platforms. Ambiguities in the legal framework can make it challenging for players to assert their rights.

Need for a clear and uniform policy framework for online gaming in India

  • Recognize the distinction between games of skill and games of chance, aligning with established legal precedents.
  • Provide clarity on the taxation of online games, ensuring that the tax rates are fair and consistent and that they promote responsible gaming.
  • Establish safeguards to protect the interests of online gaming players, including data privacy, fair play, and dispute resolution mechanisms.
  • Offer a clear regulatory path for online gaming companies to operate within the boundaries of the law, enabling them to innovate and expand responsibly.
  • Respect and uphold judicial precedents to maintain consistency in legal interpretations.


  • A clear and uniform policy framework for online gaming in India is essential to provide legal clarity, protect consumer interests, and promote responsible gaming practices. Such a framework should take into account the distinctions between games of skill and games of chance, provide transparent taxation guidelines, establish consumer safeguards, offer regulatory clarity, and respect legal precedents. By addressing these aspects, India can create a balanced and supportive environment for the online gaming industry.

Must-Read Articles:

TAMIL NADU v/s CENTER ON ONLINE GAMING: https://www.iasgyan.in/daily-current-affairs/tamil-nadu-vs-centre-on-online-gaming

REGULATING ONLINE GAMING: https://www.iasgyan.in/rstv/perspective-regulating-online-gaming

50th MEETING OF GST COUNCIL: https://www.iasgyan.in/daily-current-affairs/50th-meeting-of-gst-council

ONLINE GAMING INDUSTRY: https://www.iasgyan.in/daily-current-affairs/online-gaming-industry


Q. What is the potential of the online gaming industry in India, and what are the key challenges it currently faces? What strategies and policies can be employed to navigate these challenges and pave the way forward for sustainable growth and responsible gaming practices in the country?