Skill or luck? Debate settled: SC declares all betting is gambling

The Supreme Court has dealt the online gaming industry its heaviest blow yet. On Wednesday (May 27), it upheld a 28 per cent tax on the money people put into online games. This is the goods and services tax (GST), which is added to most things we buy.

Here the tax falls on the entire amount a player stakes, not on the small fee the company keeps. And it applies to past bets, not only to bets placed from now on. That brings back tax demands of more than a lakh crore rupees.

Also read: SC upholds Tamil Nadu, Karnataka laws banning online real-money gaming

A two-judge bench of Supreme Court, comprising Justices JB Pardiwala and R Mahadevan, decided the case. Justice Mahadevan wrote the main judgment. The court answered a question that had split lawyers, tax officials and high courts for years. Its answer was simple. The moment a person bets money on an uncertain result, the activity counts as gambling for this tax. It makes no difference whether skill or luck decides who wins.

New rules

For years, gaming firms paid a much smaller tax. They paid 18 per cent on the slice of money they kept as their fee. In 2023, the GST Council changed that. The Council is the group of central and state finance ministers that decides GST rules. It ruled that the 28 per cent tax would apply to the full amount staked, whether the game involved skill or luck. The new rate began on October 1, 2023. The companies warned that it would multiply their tax bill many times over.

A simple example shows the jump. On a deposit of Rs 100, the tax rose from about Rs 1.8 to Rs 28. The companies argued that a tax this heavy would swallow more than they ever earned.

The controversy

The fight began with a Bengaluru company called Gameskraft. In September 2022, the tax department sent it a show-cause notice, asking the company to explain why it should not pay a tax the department thinks is due. The notice demanded about Rs 21,000 crore. The Karnataka High Court cancelled the notice in May 2023. It said rummy played for money was still a game of skill, not gambling.

Also read: Explained: How Online Gaming Bill’s passage impacts gamers, industry, and regulators

The tax department appealed to the Supreme Court. In September 2023, the Supreme Court put that High Court order on hold. It then gathered dozens of similar cases from across the country and heard them together.

‘Right to win money’

The Supreme Court has now overturned the Karnataka ruling. Its reasoning runs like this. Betting, at heart, means risking money on an uncertain outcome. A skilled player who bets is still doing exactly that. When a person places a bet, they gain a right to win money.

The law treats that right as a kind of goods, something that can be bought, sold and taxed. Lawyers call it an actionable claim. The gaming platform creates and sells that right. So the platform, not only the players, must pay the tax. The court rejected the idea that the platform is just a go-between.

Applicable tax

The next question was how much money to tax. The companies said the tax should leave out the prize money paid back to winners. The court disagreed. Nothing in the law let them subtract the winnings before working out the tax.

So the tax applies to the entire pool of money staked. The rule that sets the tax on this full amount, known as Rule 31A, was held to be valid. It flows from the Central Goods and Services Tax Act, the main GST law.

Also read: Why online games are no child’s play: A psychiatrist explains

The most fought-over question was timing. The companies said the higher tax should apply only from October 2023, when the new rule began. The court took a different view. It held that the 2023 changes only made the existing law clearer. They added no new tax. They only spelt out a tax that already applied. Because they merely clarified the law, they reach back into the past. That is why the old demands, including the Gameskraft notice, come back to life.

Fantasy sports

The industry also said the tax broke its basic rights under the Constitution. It pointed to the rights to equality, to do business, and to life. The court turned down every one of these arguments. A heavier tax bill or business losses cannot by themselves make a tax illegal, it said. The right to life does not apply to a tax dispute. The Constitution itself gives Parliament the power to charge GST, and this tax fits squarely within that power.

The ruling goes well beyond card games like rummy and poker.

Also read: Centre bars 300 illegal gambling, betting sites as crackdown intensifies under Gaming Act

In 2019, the Bombay High Court had protected Dream11's fantasy sports contests as games of skill. The Supreme Court has overturned that protection too.

Fantasy sports now fall under the same tax. Casinos are covered as well. Where a casino kept poor records, the court said tax officers may work out the tax on a fair estimate. The exact figure must still follow the new rules.

Who can ban betting games?

On the same day, the same two judges delivered a second ruling that points the same way. That case, State of Tamil Nadu v. Junglee Games India, asked a different question. Can a state government ban or curb online money games on its own?

Tamil Nadu and Karnataka had passed laws doing just that. Their High Courts had struck those laws down, holding that games of skill could not be banned.

Also read: How online gambling ruined lives of young men in Maharashtra’s Solapur and Beed

The Supreme Court has now reversed both High Courts. It held that the states have full power to regulate, or even ban, betting on any game once money is staked, skill or no skill. So the two rulings rest on one idea. The same logic that justifies the tax also lets the states shut these games down.

The sums at stake are enormous. In documents filed during the case, the governments put the unpaid tax at about Rs 91,685 crore for online gaming firms. With casinos added, the figure crosses Rs 1,08,500 crore. Few industries could pay a bill of that size.

Yet the tax now falls on an industry that has already been shut down.

Ban on online games

In a separate step, Parliament banned all online games played for money, whether skill or luck. That ban took effect on May 1, 2026. The big real-money platforms had already closed their paid games from August 2025. Many of the companies now asked to pay old taxes no longer run the business that created them.

Critics will call the timing harsh. They will say the government is taxing money that, in large part, went straight back to players as winnings. Their stronger point is about certainty.

Also read: Centre links online gaming to terror financing, money laundering

Businesses value stable, predictable rules more than almost anything else. Changing what counts as taxable years later, then calling it a clarification, looks like taxing the past by another name. If the tax went uncollected because the law was unclear, that failure belongs to the government and its officers.

Rise of illegal websites

The bill for that confusion, they argue, should not land on firms that paid what the rules then seemed to ask. Critics also point out that the ban has pushed many players to illegal foreign websites that pay no Indian tax at all.

The government's answer, which the court accepted, is simple. A law that merely clarifies an existing tax cannot be undone just because paying it now hurts.

Skill defence ends

The GST judgment does not end the matter for each company. The court has reopened the notices and given the firms eight weeks to reply. Tax officers will then decide how much each company owes, following the rules the court has laid down.

Also read: A thriving IPL gaming, illegal betting ecosystem, powered by celebrities

The companies can still appeal on the amounts. The big legal question, though, is now closed. The skill argument that kept the industry safe for decades no longer shields it from this tax.

The two judgments together settle the law on a single idea. Once money rides on an uncertain result, skill stops mattering. That one proposition lets the government tax these games and lets the states ban them.

Future still unclear

The GST judgment also ended with a wider thought. India's digital economy is growing fast, it said, and tax law must keep pace with new kinds of business. Yet that flexibility, it warned, must not come at the cost of steady, predictable rules. The verdicts give the government certainty about the past. Whether they give businesses the same confidence about the future is the question that now lingers.