The Central Goods and Services Tax Act, 2017 (‘CGST Act, 2017’) and The Promotion and Regulation of Online Gaming Act, 2025 (‘OGA, 2025’) use money as the criteria to differentiate between various kinds of online gaming. In both legislations online gaming is the omnibus category while online money gaming is its sub-category characterized by players depositing monetary stakes. Section 2(80A), CGST Act, 2017 states that online gaming means a game offered on the internet or an electronic network and includes online money gaming. Section 2(80B), in turn, defines online money gaming as online gaming in which players deposit money in the expectation of winning a monetary prize whether the outcome is based on skill, chance or both. The OGA, 2025 also adopts similar definitions for online gaming and online money gaming in Section 2(f) and 2(g) respectively. And prohibits any person from offering online money games. While other forms of online gaming – where monetary stakes aren’t involved – are permissible.
Both the CGST Act, 2017 and the OGA, 2025 are a marked departure from most previous legislative interventions on gambling in one significant aspect: they render the distinction between games of skill (‘gaming’) and games of chance (‘gambling’) as irrelevant qua online games. Instead, they use money as the differentiating factor between online gaming and online gambling. The OGA, 2025 gives central place to ‘nature of the electronic medium’ and is premised on online games being a sui generis category incomparable to physical or in-person games. Preamble of the OGA, 2025 mentions propensity for addiction to online money games, their manipulative design, and addictive algorithms as reasons for prohibiting them. The CGST Act, 2017 also dispenses with the skill-chance distinction. The Revenue’s view as evidenced by its arguments in Gameskraft Technologies Private Limited v DGGSTI (‘Gamekraft case’), is that use of monetary stakes by players in an online game per se amounts to gambling. And online gaming providers’ insistence on monetary deposit by players as a pre-condition for playing instead of assessing players’ skills implies that online money gaming is gambling.
This article examines the Parliament’s use of money instead of the skill-chance criteria for online games from two perspectives: taxation and regulatory. And concludes that apart from subjecting online money gaming to an onerous tax there is little merit in equating it to gambling under the CGST Act, 2017. While the OGA, 2025 treats all online money games alike to effectuate an immediate and blanket prohibition. But the prohibition raises novel constitutional questions. For example, as per the doctrine of res extra commercium gambling is not protected under Article 19(1)(g) of the Constitution. Though gaming enjoys the said protection. But scope of the doctrine of res extra commercium was determined in the context where skill-chance criteria was used to distinguish gaming from gambling. Now, if money is used to differentiate online gaming from online gambling, does it, by default, expand the doctrine of res extra commercium? There is no clear answer. The article concludes that despite the Union of India’s claims to the contrary, both the above legislative interventions, independently and cumulatively, are aimed at throttling the online gaming sector. Going forward, reconciling skill-chance criteria with the yardstick of money in online games may be more appropriate instead of viewing both as binary options. But adopting such an approach will require reorienting the legislative aims towards regulating the online gaming sector and not paralyzing it.
Skill-Chance Distinction in GST Gives Way to an Onerous Tax
Before 2023, the CGST Act, 2017 recognized that gaming was distinct from gambling. And the distinction was visible in definition and applicable tax rates. Section 2(52) of the CGST Act, 2017 read with Entry 6 in Schedule II of the CGST Act, 2017 included actionable claims in the definition of goods. And, subjected only three actionable claims – lottery, betting and gambling – to GST. Online gaming was included in Section 2(17)(vii), The Integrated Goods and Services Tax Act, 2017 (‘IGST Act, 2017’) under the broader category of ‘online information and database access or retrieval services’ (‘OIDAR’). The GST rates for gambling and gaming were – before 2023 – 28% and 18% respectively. And while online gambling as an explicit category did not exist one could argue that it was subsumed under gambling.
The terms lottery, gambling and gaming have specific meanings under gambling law jurisprudence. And their use in the CGST Act, 2017 implied that the Parliament wished to import the same meaning in GST. However, in Gameskraft case, the Revenue insisted that online money gaming – even it involved skill – is gambling and departed from previously understood meaning of gambling. The Revenue’s view was not founded on online games being distinct from physical games but on its overemphasis on the use of money in online money gaming and its reinterpretation of the jurisprudence on skill-chance distinction.
In Gameskraft case, the Revenue claimed that online money gaming is gambling because an online gaming provider mandates deposit of monetary stakes by players who then play with the expectation of winning a bigger prize money. The Revenue’s view can be understood through the example of rummy. In the context of in-person rummy, the Supreme Court in State of Andhra Pradesh v K Satyanarayana & Ors (‘Satyanarayana case’) held that rummy is a game of skill since building rummy requires memorizing of cards and how to hold or discard cards. But the Revenue resisted applying the above reasoning to online rummy. The Revenue cited online gaming providers necessitating deposit of monetary stakes by players before permitting them to play online rummy. Compulsory stakes made online rummy distinct from physical rummy. The latter, the Revenue claimed, can be played with or without such stakes. In Satyanarayana case, the Supreme Court held that gaming for a monetary prize does not transform it to gambling. A view that aligns with the pre-dominant test laid down in State of Bombay v R.M.D. Chamarbaugwala (RMDC-I case). In RMDC-I case, the Supreme Court held if chance overpowers the skill of players and to a substantial degree influences result of a game then the game is gambling. Else it is gaming. The test is to determine if skill chance dominates skill or otherwise. The Revenue further claimed that the deposit of monetary stakes by players amounted to placing a bet on an uncertain outcome since players did not know result of the game. In both gaming and gambling the outcome is uncertain when stakes are placed by players at the beginning of or during a game. But the only relevant inquiry is whether it is skill or chance that pre-dominantly influences outcome of the game. And not that players deposited or did not deposit a monetary stake.
The Revenue, in Gameskraft case, also argued that the gambling nature of online money gaming was evident from online gaming providers charging a higher platform fee if the players increased their monetary stakes. In this respect, the ratio of Satyanarayana case states that only if the club earns extraordinary profits that an argument of gambling can sustain. But an extra charge by a club for providing facilities or to recoup expenses is insufficient to make the claim that a club facilitates gambling. Thus, merely charging a platform fee does not making an online gaming provider a facilitator of gambling. And, if an online gaming provider charges proportionately higher platform fee if players deposit higher monetary stakes, it is arguably operating within the boundaries of Satyanarayana case. Admittedly, though, there is no clear criteria to separate ordinary profits from extraordinary profits. Anyhow, the Revenue collapsed all the above nuances and insisted that mere presence of money in a game and an online gaming provider charging a platform fee transforms online money gaming into gambling.
Another implied reason for the Revenue’s stance was that online gaming providers were taking advantage of tax arbitrage and offering online gambling but disguising it as online gaming to pay a lower GST rate of 18% instead of 28%. A prudent approach to address this alleged tax avoidance would have been to use the skill-chance criteria to verify the nature of online games. For example, the Punjab & Haryana High Court in Shri Varun Gumber v UT of Chandigarh & Orsused the skill-chance distinction to hold that online fantasy games are gaming and not gambling. The Bombay High Court adopted a similar approach in Gurdeep Singh Sachar v Union of India to clarify the applicable GST tax rate for online fantasy games. Additionally, in Gameskraft case, the Karnataka High Court held that online rummy was gaming by relying on the skill-chance distinction. There is no fatal flaw in applying the skill-chance distinction to online games. But since the skill-chance distinction is rooted in physical or in-person games, tailoring it to online games may require making additional inquiries. Possibly a case-to-case assessment as to whether adaptation of a game to an online medium alters its skill-chance balance to change its nature from gaming to gambling. The bias of algorithms, certification of dice, possible use of bots or fake online accounts are some relevant factors to consider in determining the nature and integrity of online games. While an exclusive reliance on money as a criterion to categorize online games is a broadbrush approach towards online gaming that saves such additional, but prudent, inquiries.
The Karnataka High Court in Gameskraft case rejected the Revenue’s stance. But the Revenue instead of reconsidering and moderating its tax demands catalyzed amendments to the CGST Act, 2017 and IGST Act, 2017 that reinforced its position on online gaming. The CGST (Amendment) Act, 2023 inserted the definitions of online gaming and online money gaming referred above. Simultaneously, Section 2(102A) of the CGST Act, 2017 read with Entry 6 in Schedule II of the CGST Act, 2017 included online money gaming within the scope of specified actionable claims and subjected it to GST.
An equally pertinent change was the GST Council’s recommendation that for online money gaming the measure of tax be changed to turnover basis. Various states in the GST Council justified the use of turnover basis instead of Gross Gaming Revenue (‘GGR’) by arguing that it was difficult to compute the latter. To exemplify the quantum of change caused by changing measure of tax from GGR to turnover: suppose two players stake Rs 50 each to play online rummy and the online gaming provider deducts a platform fee of Rs 10 with the remaining Rs 90 being monetary prize to be transferred to the winning player. Use of GGR as measure of tax will imply that GST is calculated on Rs 10, the platform fee charged by the online gaming provider. While use of turnover basis will imply that GST is calculated on Rs 100. Assuming a rate of 28%, the GST burden on one such transaction increased from Rs 2.8 to Rs 28. A ten-fold increase in tax liability.
The amendments in GST laws made in 2023 created an onerous tax liability for online gaming providers. And in doing so, GST departed from its nature as a value-added tax by choosing turnover as measure of tax instead of the value generated by an online gaming provider. To compare, in banking transactions or securities transactions, GST is computed only on service fee charged by banking intermediaries or stockbrokers. And not on face value of the transaction. Online gaming providers were singled out to bear a disproportionately heavy tax burden. The onerous nature of changes is further compounded by the Revenue’s insistence that the amendments to GST laws in 2023 will be implemented retrospectively. Finally, alongside the amendments to GST laws, the obligation of deducting 30% tax at source on net winnings in online games was introduced in 2023 under Section 194BA of the Income Tax Act, 1961. The amendments to GST laws and the Income Tax Act, 1961 interlock to reveal that online money gaming is subjected to an exceptionally onerous tax liability. The Revenue has cited various reasons to support the above changes: online gaming providers were indulging in tax evasion, tax arbitrage and lack of legal clarity on taxability. But all the above reasons disguise that GST laws were amended in 2023 to throttle the online gaming sector.
Understanding Blanket Prohibition on use of Money in Online Gaming
The OGA, 2025 bans online money gaming while permits other forms of online gaming. The distinction between the two games is like the CGST Act, 2017. The OGA, 2025 is the most prominent legislative intervention in regulating online gaming, though various states have previously tried to outlaw online gaming without much success. Constitutional concerns on the OGA, 2025 are manifold including the Union’s legislative competence since ‘betting and gambling’ is a subject in Entry 34 of List II of the Seventh Schedule. But a focus on the OGA, 2025 adopting money as the criteria to permit or prohibit online games and treating skill-chance criteria as irrelevant reveals its own set of challenges.
In RMDC-I case, the Supreme Court invoked the doctrine of res extra commercium to hold that gambling does not enjoy the protection of Article 19(1)(g) of the Constitution. Only gaming can claim such a protection. This position of law has allowed the states to impose outright bans or onerous conditions on gambling without satisfying the requirement of reasonableness. While any restrictions on gaming can be tested on the touchstone of reasonableness under Article 19(2) of the Constitution. But when the OGA, 2025 unifies gaming and gambling under a single category of online money gaming, the applicability of res extra commercium raises novel questions. Can the Union persuasively argue that the doctrine of res extra commercium, by default, applies to online money gaming? The Supreme Court propounded the doctrine of res extra commercium in the context of physical games that were distinguished by adopting the skill-chance criteria. If the Parliament, under the OGA, 2025, adopts an alternate criteria like money to distinguish online gaming from online gambling the scope of doctrine and its applicability to online games should ideally be re-examined. One way for the Union to successfully claim that the scope of the doctrine of res extra commercium is different – and more expansive for online games – will be to establish that online medium is incomparable to physical games. An onerous and unprecedented task.
The comparable point of reference for the OGA, 2025 is a handful of state legislations – such as those enacted by Karnataka and Tamil Nadu – wherein blanket bans on online games were sought to be imposed. And writ petitions challenging their constitutionality succeeded inter alia because states could not discharge the burden that gaming transforms into gambling merely because games are played online. Or that mere use of money is sufficient to convert gaming into gambling. For example, in Junglee Games Pvt Ltd v State of Tamil Nadu the Madras High Court refused to acknowledge that ‘medium based regulation’ is permissible. The Madras High Court conceded that online games are incomparable to physical games. But, at no point, did it abandon the skill-chance criteria to examine the online gaming-online gambling distinction. The State of Tamil Nadu was required to discharge two related burdens: first, gaming transformed into gambling merely because it was played online; second, that use of monetary stakes by players converted gaming into gambling. Latter required establishing that it is monetary stakes and not skills of players that influence outcomes of games. And former required examining each game along with the terms and conditions imposed by online gaming providers. Inability of the state to discharge these burdens resulted in the Madras High Court holding that a blanket ban on online games is unconstitutional. The Karnataka and Kerala High Courts have adopted similar approaches in striking down blanket bans on online gaming.
The only judicial approval to online money games being subject to more onerous restrictions was in Play Games 24×7 Limited v State of Tamil Nadu. But this case was in the context of additional restrictions on online money games and not their outright prohibition. State of Tamil Nadu under the Tamil Nadu Prohibition of Online Gaming and Regulation of Online Games Act, 2022 promulgated the Tamil Nadu Online Gaming Authority (Real Money Games) Regulations, 2025 (‘RMG Regulations’). Regulation 4(viii) of the RMG Regulations mandated that ‘blank hours’ shall be implemented for real money games from 12 midnight to 5 am. Petitioners challenged the validity of Regulation 4(viii) on various grounds including selective targeting of online money games. Petitioners claimed discrimination by arguing that online movie platforms such as Netflix were not subjected to similar blank hours. The Madras High Court mentioned few characteristics of online money games that in its view made them incomparable to other online platforms.
The Madras High Court noted that entertainment platforms such as Netflix require a monthly fee as opposed to repeated requirement of deposit of monetary stakes in online money games. And neither can online money games be compared to free online games. Also, there is novelty in online poker and online rummy which until recently were played exclusively in person and where ‘reading the opponent’ was an essential part of the game. Whereas in an online poker or online rummy a person may not know their opponent lending online money gaming a distinct characteristic. Referring to the above distinct characteristics of online money games the High Court approved blank hours that were mandated only for online money games.
The relatively narrow prohibition in terms of time and the High Court’s willingness to examine online money games with some level of detail provides a good starting point for framing reasonable restrictions instead of blanket bans on such games. But such an approach is worth pursuing only if the legislative aim is to regulate, while the OGA, 2025 demonstrates that the Parliament has preferred to prohibit online money games en masse instead of adopting a nuanced regulatory framework.
Conclusion
Change of applicable GST rates on online money gaming only partially captures the change effectuated in 2023. The change in measure of tax for online money gaming wherein tax is calculated on turnover basis instead of GGR reveals the true effect of tax increase. It converts GST into an onerous tax for online money gaming and subjects it to a tax burden but spares banking or securities transaction intermediaries. The OGA, 2025 is unambiguous that online money games are prohibited. The validity of such a prohibition will be decided in due course, but for now online money gaming is illegal. Even if the constitutional challenge to the OGA, 2025 succeeds then the tight GST noose will ensure that their survival is difficult if not impossible. Both the regulatory and taxation policies have converged to scuttle online money gaming. Only if the taxation and regulatory policy towards online money gaming shifts, or receives a judicial pushback, can a more prudent approach of synchronizing the skill-chance distinction with the monetary element lead us towards a more permissive taxation and regulatory framework. Currently, the taxation and regulatory approaches operate in tandem and aim the opposite: scuttling online money gaming.
