The Supreme Court of India has temporarily halted ₹1.12 lakh crore in Goods and Services Tax (GST) show-cause notices issued to online gaming companies. This decision, delivered on January 10, 2025, suspends ongoing proceedings until a definitive resolution is reached, offering significant relief to the industry. The court has also consolidated the cases for a collective hearing scheduled for March 18, 2025.

At the core of the issue lies the interpretation of GST’s applicability to online gaming. The government advocates for a 28% GST rate applied to the total contest entry fees, effectively taxing the entire prize pool. Conversely, online gaming companies argue that the tax should only be levied on their platform fees or commissions, especially for skill-based games that differ fundamentally from gambling or betting.

Debate Over GST Rates

This taxation dispute highlights the broader contention between taxing online gaming at the higher rate of 28%, as with betting and gambling, or at 18%, which generally applies to services. The 28% rate significantly increases tax liabilities for companies, potentially threatening the growth and sustainability of this burgeoning sector.

Saurabh Agarwal, Tax Partner at EY, noted that the March hearing would play a pivotal role in shaping the regulatory environment for online gaming. He emphasized the importance of a fair and transparent taxation system to support the industry’s rapid growth, according to a statement published by Business Standard.

Industry and Expert Reactions

The decision was met with optimism across the online gaming sector. Advocate Abhishek A. Rastogi, representing the gaming companies, explained that the Supreme Court’s stay prevents coercive actions from tax authorities while ensuring that these cases do not become time-barred. “This stay not only alleviates immediate pressure but also safeguards procedural fairness for the industry and revenue authorities,” he stated, according to The Hindu.

Anuraag Saxena, CEO of the E-Gaming Federation, welcomed the decision, describing it as a positive step for both gaming companies and the government. Saxena expressed confidence that a fair resolution would encourage investment, job creation, and valuation growth in the sector, especially amid declining foreign institutional investment in equity markets.

The Supreme Court’s decision also led to a 17% surge in Delta Corp’s stock prices, reflecting renewed investor confidence in the sector.

The Road Ahead

The GST Council had earlier, in July 2023, reclassified online games—encompassing both skill- and chance-based categories—under the 28% GST slab, effective October 2023. Before this, skill-based games were taxed at a lower rate of 18%. Adding to the industry’s challenges, the government revealed in December 2023 that 71 show-cause notices had been issued to online gaming firms for alleged GST evasion during 2022-23 and the first half of 2023-24.

The gaming industry now awaits the March hearing, which is expected to deliver a decisive ruling on whether online gaming will be taxed as a service or equated with gambling and betting. This ruling will likely influence future investments and the operational framework of the industry, marking a turning point for its regulatory landscape.