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Source: The post is based on the article “Menaka Guruswamy writes on GST on online gaming: Taxing luck, not skill” published in The Indian express on 5th August 2023.
Syllabus: GS3- Indian economy (taxation)
News: The article discusses a court case where Gameskraft, an online gaming company, challenges a large tax demand. The main issue is whether online games like rummy are based on skill (and not taxable) or chance (taxable). The Karnataka High Court sided with Gameskraft, but the decision will be reviewed by the Supreme Court.
About Karnataka High Court’s decision in Gameskraft
Case Background: Gameskraft, an online gaming company, challenged a GST notice of Rs 21,000 crore.
Main Argument: Gameskraft stated they merely provide an online gaming platform. Prize money is held in a trust and not owned by them.
Key Distinction: The court differentiated between games of skill and games of chance.
Decision: Online games like rummy, which are based on skill, aren’t taxable like gambling activities.
How are games taxed in India?
Basic Principle: Games of skill aren’t taxed, while games of chance are taxable.
Relevant Law: The CGST Act lists lottery, betting, and gambling as taxable under Entry 6, Schedule III.
Finance Act Definition: Section 65B(15) of the Finance Act, 1994 defines “betting or gambling” as staking something of value, especially money, aware of the risk and hope of gain, based on game outcomes or chances of events occurring.
Court Interpretation: Supreme Court judgments have differentiated between gambling activities and games of skill.
For examples:
Rummy: Viewed as a skill game due to memorizing card sequences, so not taxable.
Horse Racing: Seen as a skill game because of trained horses and jockeys; betting is based on assessment.
