Karnataka High Court Ruling: Skill-Based Online Games Not Taxable as ‘Betting’ and ‘Gambling’ – Examining the Legal Landscape and Regulatory Updates

In the case of Gameskraft Technologies Private Limited Versus Directorate General Of Goods decided on 11/05/2023, the Karnataka High Court has ruled that online/electronic/digital Rummy games and other online/electronic/digital games played on Gameskraft’s platforms are not taxable as “betting” and “gambling.”

The issue at hand was whether offline or online games like Rummy, which are primarily based on skill rather than chance and can be played with or without stakes, amounted to “gambling or betting,” as defined in Entry 6 of Schedule III of the Goods and Services Act of 2017.

The court ruled that the phrases “betting” and “gambling” in Entry 6 of Schedule III of the CGST Act must be interpreted in the same way that they were in Entry 34 of List II of the Seventh Schedule to the Constitution and the Public Gambling Act, 1867. Therefore, the phrases “betting” and “gambling” under Entry 6 of Schedule III of the CGST Act do not and cannot encompass games of skill.

Games of skill and games of chance have been extensively contested since the introduction of online gaming networks and platforms that offer betting on these online games. The Public Gambling Act of 1867 is the only central legislation that controls gambling, however, it is out of date and does not include any regulations for online gambling. Gambling and betting being matters of state list, states have taken discretion to adopt such laws, although there is still a lack of standardisation.

The potential for change is in the recent update by the Ministry of Electronics and IT (MeitY), which has introduced various checks and balances through relevant amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, notified on April 06, 2023, which recognises skill games and regulates online betting culture throughout the country.

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Tejaswi D Shetty
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