The Supreme Court has upheld the ‘show cause notice’ of Goods and Services Tax (GST) issued to gaming companies. These notices were related to imposition of 28 percent tax on the full value of deposit amounts which were deposited through the platforms of these companies. The court said that imposing tax on online gaming companies is constitutionally valid. The Supreme Court said that under the GST Act, online gaming activities give rise to ‘actionable claims’ (on which legal action can be taken). The court rejected the petition of Delta Corp and other companies which opposed the imposition of 28 percent ‘retrospective GST’ (tax applicable from the previous date) on online games. The Supreme Court said that state governments can ban online money games, even if those games involve skill.
Supreme Court upheld the notice
The court allowed the appeals of the Tamil Nadu and Karnataka governments and canceled the decisions of the Madras High Court and the Karnataka High Court which had struck down state laws banning or controlling online gaming (in which money is at stake). The Supreme Court upheld the GST show cause notices issued to online gaming companies and canceled the relief granted by the Karnataka High Court. GST officials have been instructed to take further action on the ‘show cause notice’ as per law. The Supreme Court said that companies are free to respond to the ‘show cause notice’ issued by the GST authorities.
What did the tax officials demand?
The move is another major blow to the ‘real-money gaming’ industry, which has already been outlawed under the government’s new online gaming law. In August 2025, the Supreme Court had reserved its verdict on ‘retrospective tax notices’ worth about Rs 2.5 lakh crore issued against ‘real-money gaming’ (RMG) platforms over the past few years. At the heart of the dispute were differing interpretations of how GST should be imposed on real-money gaming platforms.
The tax authorities had demanded 28% GST on the entire face value of the amount deposited. Platform companies, on the other hand, argued that they should pay tax only on the commission they charge for organizing tournaments. This commission is also called ‘Gross Gaming Revenue’ (GGR), which is usually 5-15 percent of the amount deposited. He also said that the amount of GST demanded by the tax authorities is many times more than the total revenue earned by these companies, which will eventually lead to the closure of these companies.
The government had implemented a new law
In August, about two weeks after the Supreme Court reserved its decision, the Indian government implemented a new online gaming law. The name of this law is ‘Promotion and Regulation of Online Gaming Act’ (PROGA). This law bans online money games in which a user deposits money, directly or indirectly, with the expectation of receiving some winnings from that deposit. This led to a sudden decline in the country’s $3.5 billion real-money gaming industry, leading to massive cost cutting. Amid declining revenues and struggling to survive in the new circumstances, companies laid off more than 3,000 employees. These rules formally came into effect from May 1, 2026.
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