India Weighs 40% GST on Online Gaming

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New Delhi: The Indian government is considering major changes to the Goods and Services Tax (GST) framework, proposing a simplified system with two primary slabs, 5% for essential goods and 18% for most items, while introducing a potential 40% GST category for luxury and “sin” goods. Reports indicate that online real-money gaming (RMG) could fall under this highest tax bracket, sparking concern among industry stakeholders.

If implemented, this would place online gaming alongside products such as alcohol, tobacco, and gutkha. Companies active in the sector, including Delta Corp and Nazara Technologies, have expressed unease, with their shares reportedly falling nearly 1.80% following media reports of the proposed change. The sector is still adapting to a 28% GST imposed on player deposits in October last year, and the new proposal could significantly impact its financial viability.

Legal experts have raised concerns about how online gaming would be classified under the 40% bracket. India’s Supreme Court has consistently distinguished games of skill, such as Rummy and Fantasy Sports, from games of chance, deeming the former legal business activities. Placing skill-based online games under a “sin goods” category could contradict this precedent and create further legal uncertainty.

A critical issue for the industry is how the 40% GST would be applied. If levied on player deposits, platforms could face unsustainable tax burdens, as operators earn only a fraction, typically 5–10%, of the total deposit pool. In contrast, taxing only the Gross Gaming Revenue (GGR), which refers to the operator’s commission, would be more manageable while still representing a significant financial obligation.

Industry representatives have urged the government to clarify the classification. Anuraag Saxena, CEO of the E-Gaming Federation, warned that a 40% tax could “fundamentally undermine a growing digital sector that has demonstrated potential for job creation, innovation, and responsible growth.” He emphasised that equating skill-based online games with tobacco or gutkha could lead to closures, layoffs, and reduced investor confidence.

The Supreme Court’s pending verdict in the Gameskraft case is also central to the sector’s future. The ruling is expected to clarify distinctions between games of skill and chance, the legitimacy of retrospective tax claims exceeding ₹1.5 lakh crore, and the proper GST calculation method. Industry observers say the decision could determine whether online gaming continues to operate under a predictable regulatory framework or faces substantial additional tax liabilities.

As the Indian online gaming sector navigates potential GST reforms and awaits judicial guidance, investors, operators, and players are closely monitoring government decisions and legal outcomes that will shape the industry’s growth trajectory.