Game On or Taxed Out? GST’s Prospective Promise and Retrospective Punch

As the IPL fever grips the nation, millions are glued to their screens, cheering for their teams and tweaking their Dream11 fantasy squads. But behind the thrill and strategy lies a growing storm—the complex web of GST regulations tightening around online gaming platforms. With legal shifts, tax demands, and ongoing debates, Dream11 and its peers find themselves navigating uncharted territory.

The Rise of Fantasy Sports in India

Fantasy sports have redefined fan engagement. No longer are audiences just spectators—they’re now virtual team owners, strategists, and, occasionally, winners. Platforms like Dream11 allow users to build dream teams and earn points based on real-time player performances. It’s entertainment, competition, and community rolled into one.

But as user engagement skyrockets, so does regulatory scrutiny.

GST Framework: From 18% to a Staggering 28%

Earlier, online gaming was taxed at 18% on platform fees or Gross Gaming Revenue (GGR)—essentially, the commission the platform earned. This applied to games classified as skill-based, and courts had repeatedly ruled fantasy sports fall under this umbrella. But the game changed on October 1, 2023. The GST Council decided to impose 28% GST on the entire face value of bets—whether it’s a game of skill or chance. That means the entire entry amount, not just the platform’s cut, is now taxable at the highest slab. A move that stunned the industry.

Skill vs. Chance: The Legal Tug-of-War

The cornerstone of this debate has always been whether fantasy sports are games of skill or chance. Multiple High Courts—Punjab & Haryana, Bombay, Rajasthan—have ruled that fantasy sports involve substantial skill. For instance, the Bombay High Court, in Gurdeep Singh Sachar v. Union of India, concluded that Dream11’s format is a game of skill and should be taxed at 18% on platform fees. However, the GST Council’s move to tax the entire bet amount at 28%, regardless of this distinction, has sparked controversy. Industry players argue that such treatment disregards judicial precedent and could cause long-term harm to a fast-growing sector. The Supreme Court's upcoming verdict could be a game-changer.

The Real Shock: Retrospective Tax Demands

If the rate hike wasn’t enough, another blow followed—tax demands dating back to July 2017. Yes, you read that right. Platforms like Dream11 now face massive retrospective tax liabilities—Dream11’s alone is reportedly over ?28,000 crore. The rationale? That even before the October 2023 clarification, the services rendered were “actionable claims” similar to gambling, and thus taxable at 28%. The industry argues: how can they be taxed for a period when laws were unclear, and courts sided with them?

Inside the GST Council: 50th to 53rd Meeting Highlights

Let’s rewind and decode how this unfolded inside the Council meetings.

50th Council Meeting: The Showdown Begins

The Council debated taxation of casinos, horse racing, and online gaming.

GoM (Group of Ministers) led by Meghalaya CM Conrad Sangma submitted reports but consensus remained elusive.

Key discussions:

(a) Skill vs. Chance: Courts say skill, but laws were silent.

(b) Tax Base Dilemma: Goa & Sikkim wanted tax on GGR (global norm); others like Maharashtra & UP insisted on full-face value.

(c) Uniformity vs. State Needs: Some pushed for uniform rules; others said Goa & Sikkim needed exceptions.

Final call: 28% tax on full face value for all three activities, skill or not.

Amendments in Law: Bringing Clarity

To back this decision, legal changes were made to the CGST & IGST Acts:

Valuation Showdown: Face Value vs. GGR – Who Won the Game?

The 52nd GST Council meeting turned the spotlight on one of the most contentious issues surrounding the taxation of online gaming, casinos, and horse racing—the method of valuation. While there was unanimous agreement on taxing all three sectors at a 28% GST rate, the real clash was over the base on which this rate should apply. Should GST be levied on the full face value of bets and entry fees, or should it be calculated on the Gross Gaming Revenue (GGR), i.e., the actual earnings after prize payouts?

States like Goa and Sikkim, where the casino industry plays a pivotal role in local economies, argued fiercely for the GGR-based approach, citing global best practices. They even proposed a 60% abatement if GGR wasn’t accepted. On the other hand, heavyweights like Maharashtra, Uttar Pradesh, Karnataka, and Tamil Nadu pushed for full-face value taxation, calling it a simpler, more transparent model that ensures higher revenue and avoids legal grey areas. States like Tamil Nadu also flagged social concerns, stating that online games of chance are already banned there and any tax decision should respect state laws. Despite Goa’s persistence, the Council stuck with the full-face value model, confirming that all three activities—online gaming, horse racing, and casinos—will be taxed uniformly at 28%, regardless of whether they're games of skill or chance.

Prospective or Retrospective : Is it a step forward or a step back for the online gaming industry?

The 53rd GST Council meeting saw a storm brewing over retrospective tax demands. Members from Delhi, Goa, West Bengal, Maharashtra, and Meghalaya expressed deep concerns over the Rs. 1.5 lakh crore in tax notices issued by the DGGI (Directorate General of GST Intelligence) to online gaming and casino companies—for periods prior to October 1, 2023, before the new GST rules officially kicked in.

The State of Goa emphasized that casinos had been following an 18% tax regime and did not collect the now-demanded differential tax from users. Delhi made a compelling case that taxing what was never collected is not just impractical but unfair. They even requested that the Council pass a resolution clarifying that the 28% GST is not retrospective, and the notices should be withdrawn. However, the Council clarified that the amendments effective from October 2023 are prospective in nature, and the DGGI actions are based on their interpretation of existing laws during that earlier period—so technically not retrospective. While the Council acknowledged the industry's discomfort, it also noted that policy clarity and legal enforcement often walk a tightrope. The issue, for now, has been deferred for further data collection and review, leaving stakeholders in suspense as they await a possible resolution—or more litigation.

Is the online gaming industry on the brink of a tax nightmare, or is it just a bump in the road?

The online gaming industry in India is currently caught in a storm of regulatory uncertainty as companies like Dream11, Gameskraft, and Games 24×7 face show-cause notices from the Directorate General of GST Intelligence (DGGI), accusing them of tax evasion. This comes as the sector continues to be taxed at a steep 28% GST, with authorities raising concerns about retroactive tax application that could extend as far back as 2017.

The Supreme Court of India has acknowledged the growing concerns within the online gaming industry, particularly regarding the imposition of GST on gaming platforms. While the GST Council has introduced amendments to bring clarity to the taxation of online gaming, there are still significant debates about whether these changes should apply retrospectively or prospectively. The industry has raised concerns that if the amendments are applied retroactively, it could lead to massive tax demands dating back several years, which would place undue financial pressure on gaming companies. The Supreme Court has not yet delivered a final ruling, but it is expected to provide guidance on the matter, offering much-needed clarity on the retrospective vs. prospective application of the tax. What’s awaited is the Court’s decision, which will likely have far-reaching implications for the future of online gaming taxation in India.

As of December 2023, the government revealed in the Rajya Sabha that 71 show-cause notices had been slapped on online gaming companies, demanding a whopping ?1.12 trillion in GST dues. That’s not a small number—it’s a power move that sent shockwaves across the industry.

And now, with the Supreme Court pressing pause till March 2025... the real question is—who’ll win the final round?

Source:

1.  GST Council Meeting - Agenda

2. The New Indian Express

3. The Economic Times

4. Financial Express