The courts (including courts like the Supreme Court of India) have, over time, clarified various questions about the classification of games. Still, the absence of clarity persists in the taxation realm. The classification of a sport as an exercise in skill or as a chance-based game directly affects the tax rate and the value of the particular supply. In this regard, the difference between the game of skill and the game of luck in the taxation field requires a more thorough examination.

Based on the information above in mind, we would like to inform you that in September of 2022, a proceeding was initiated against an online gaming firm, Gameskraft Technologies Private Limited (" Company" or " Petitioner") by the directorate general for tax intelligence on goods and services (" DGGI") for allegedly engaging gambling and betting. According to news reports, it is clear that a fine of INR 221,000 crores (including penalties and interest) is being assessed to the company, which is one of the largest demands ever made in the history of indirect taxation in India. DGGI are the investigative division of the department for goods and service tax (" GST"). The company has contested the alleged proceedings in the Karnataka High Court and has obtained interim relief from a stay of the notice of intimation. The petition is scheduled to be heard for a final hearing and disposition in mid-October.

According to the order dated 23.09.2022, The Karnataka High Court held that the company has been offering an online version of the rummy game through its platform. It is an intermediary for which the company charges GST at 18 per cent. The company has claimed it is a sport of skills. However, the DGGI has claimed that it is entitled to collect tax according to the regulations that govern betting and gambling, which are taxed at 28 per cent GST on the value of bets on the face. It should be noted it is the case that GST in the amount of 28%, applies to what is the value on the front of the bet that is at stake in every game, as per Rule 31A in the Central goods and service tax regulations (" CGST Rules 2017.") and applies to gambling, betting and horse racing.

The company has stated that they paid taxes at a rate of 18%, assuming that the services provided fall under the realm of games that require skill, not gambling or betting. In this respect, it has been presented to Karnataka High Court that their biggest revenue-generating game has been deemed to pass the test of being a game of skills.

Below are the relevant provisions, the summary of the issue, our observations, and suggestions for improvement.


GST is a tax imposed on the supply of goods and services. The range of supply has been broad enough to cover every kind of activity, including transfer, sale barter, exchange leasing, licence, rental or disposal.

Gaming and gambling online are taxed at different rates. The services related to gambling and betting are subject to 28 per cent GST; on the other hand, games played online that are considered games of skill are taxed at 18 per cent GST.

The amount staked in online gambling or gaming is considered 'actionable claims' and falls under the provision of goods. Similar to the taxation rates for gambling services, according to the taxing schedule that applies to items, actionable claims as a result of the chance to win at betting or racing horses at race clubs attract 28 per cent GST.

About the valuation of actionable claims, Rule 31A of the CGST Rules, 2017 provides that the "value of the supply of actionable claim that is the chance to win at betting or racing horses at a race track must be at least 100 percent of the face value of the bet, or the amount that was paid into the totalizer."

Entry 6 in section III of the Central Goods and Services Tax Act 2017 (" CGST Act 2017.") states that claims with a legal basis other than gambling, betting, and lottery are not subject to taxation.

The above situation demonstrates that, while actions and services claims related to gambling, betting and horse racing are subject to the tax rate of 28, other games based on skill are taxed at 18. Additionally, games of skill are not subject to any particular rules regarding valuation, and only the value of the game's operator is subject to tax.

At this point, it is important to note that several High Courts and the Supreme Court of India have decided regarding the definition of games of fantasy and other types of games like rummy. They have also held the games to fall into the game category of games of skilled.

However, as a result of an argument brought by both the Union of India and the State of Maharashtra regarding proceedings before the Bombay High Court on the taxation issue, the ruling issued by the Bombay High Court was stayed by the Supreme Court of India. In a later application, clarification was made by the Supreme Court of India that the above stay order is only applicable to taxation issues but not to revisit the issue of whether or not related.

It is important to note that the High Court is hearing a petition for review regarding taxes on online gambling of Bombay. A separate issue relating to the constitutionality that rule 31A is a part of CGST Rules, 2017, is waiting for a final decision before the High Court of Karnataka.



  1. Petitioner argued the basis of this show cause notification (" SCN") and the notice of intimation is following rules 31A and 31AA under the CGST Rules, 2017 to require a deposit of 28 per cent GST on the total value of bets even though the constitutionality in rule 31A under the CGST Rules, 2017 is in the hands of the Karnataka High Court.
  2. Petitioner also emphasized that the GST council considers the question of taxability and valuation for the purpose of taxation related to online gambling. Petitioner further argued that, if there was any claim to be pursued, it was between the participants in regard to which the petitioner didn't have any benefit or claim.
  3. Petitioner relied on a myriad of court precedents relating to their particular case to argue that online rummy was declared a skill-based game, not a game of luck.
  4. d) Petitioner claimed that the notice in question is not a fair and reasonable process and violates Articles 14-19 and 21 under the Constitution of India.


  1. The High Court deemed it fit to halt the validity of the intimation notice as the question of legitimacy, legality, and accuracy of the challenged SCN must be resolved during the final disposal.
  2. The High Court stated that the interim order is limited and only applies to challenged intimation notice. It is issued without prejudicing the rights and arguments that the litigants have in any other case in the pending or another case, and without offering any opinions regarding the merits and demerits of competing contentions, and keeping the matter open.


Regarding the taxation of games based on skill, according to the current laws in force, these games are taxed at 18% GST, based on the amount of money paid by the operator on the platform.

As per the reports, the tax department's strategy is too open pandora's box, claiming that these online games are intended for gambling or betting. It is an opportunity to review or revisit cases that have cleared the tests on earlier instances before High Courts. We can only hope that the ministers appointed under the GST council develop favourable recommendations by releasing some guidelines or clarifications on the tax rates applicable to games that have been recognized as the game of skill before the courts.

In the future, as an initial step, all online gaming firms need to be in place with the proper evidence (legal as well as commercial) to prove the position they have taken to categorize their games as games of skills.

Suppose the businesses do not have an opinion from a lawyer regarding the position taken about what they consider to be the class of activities. In that case, this could be the right time to have the positions reviewed and scrutinized to safeguard the company from future risks and plan to avoid any penalties or interest.