India Classifies Real-Money Games as Gambling: Full Stake Taxed
The Directorate General of GST Intelligence (DGGI), in its submission to the Supreme Court in the “Gameskraft Technologies” case, stated that games involving monetary stakes on uncertain outcomes qualify as gambling for tax purposes.
Government’s Core Argument
The Indian authorities asserted that it does not matter whether a game is based on skill or chance — if it involves real-money stakes on an uncertain outcome, it is automatically classified as gambling.
As a result, even so-called skill-based games, if played with real-money stakes, are treated as betting activities and taxed under gambling regulations.
Key Points from the Government’s Position
- Staking on uncertain outcomes = gambling.
- Tax should be levied on the full stake amount, not just platform commissions.
- Gaming platforms are taxable entities, not just service hosts.
Legal Basis and Arguments
During the hearings, the government referred to Section 15(1) of the CGST Act, which defines the value of supply as the actual amount paid for the service. In the context of online games, this is the entire stake paid by the player.
| Issue | Explanation |
|---|---|
| What is being taxed? | The full stake amount (face value), not just the platform’s revenue. |
| Why? | The player pays only the stake — without it, they cannot access the game. |
| Which games are taxable? | Any game involving stakes, regardless of the degree of skill involved. |
Clarification on Rule 31A
The government emphasized that Rule 31A(3) of the CGST Rules applies not only to horse race betting but to all forms of staking, including online games.
The use of the word “or” in the phrase “betting, gambling, or horse racing” underscores that these are distinct taxable categories.
Response to Industry’s Arguments
Companies claimed that funds held in escrow accounts are not part of their income and should not be taxed. However, the government rejected this, arguing that once the stake is placed, the player loses control over the funds.
The government also cited the Skill Lotto Solutions case (2020), where the court held that the prize pool cannot be excluded from the taxable base. The same principle is now being applied to online games.
Common Industry Claims Refuted
- Only platform commissions are taxable
- Escrow accounts exempt platforms from tax
- Skill-based games are not gambling
Conclusion: What This Means for the Industry
The government’s stance makes it clear that the entire stake amount in real-money online games is subject to gambling tax rules.
This implies a significant increase in tax liability for gaming companies and may force a major shift in the industry’s business model across India.
The legal battle between the government and Gameskraft Technologies is expected to set a critical precedent for how online gaming is regulated in the country.