New Delhi: The Supreme Court’s endorsement last week of state powers to prohibit online money gaming may dramatically alter a constitutional challenge to the Centre’s Promotion and Regulation of Online Gaming (PROG) Act, which promotes responsible online gaming while regulating the sector and prohibiting harmful online money games.
Legal experts say the 27 May judgement strengthens governments’ ability to restrict real-money gaming and narrows the industry’s traditional arguments around skill-based games. The online gaming industry traditionally argued that skill-based games, such as Rummy and Fantasy Sports, are legitimate commercial activities protected by the Constitution rather than illegal betting.
But the ruling simultaneously revives a federalism debate at the heart of the PROG Act challenge: can Parliament regulate or prohibit nationwide what the Constitution largely places within the legislative domain of states?
Last week, while upholding the constitutional validity of the retrospective 28 percent Goods and Services Tax (GST) levy on the full face value of bets for online gaming companies, the top court overturned the relief earlier granted by the Karnataka High Court to online gaming company Gameskraft.
The Gameskraft case was essentially about how online gaming should be taxed under GST and whether skill-based online games can be treated as betting or gambling for tax purposes.
The high court had held that Gameskraft’s online games were predominantly games of skill and, therefore, could not be taxed as betting or gambling activities.
By reversing that ruling, the Supreme Court effectively revived the tax demand and upheld the GST regime under which online gaming companies are taxed on the entire value of player stakes rather than platform revenues.
In the same ruling, a bench of Justices J.B. Pardiwala and R. Mahadevan also upheld the powers of states such as Tamil Nadu and Karnataka to regulate and prohibit online games played for money, marking one of the most consequential developments in India’s online gaming jurisprudence.
The court also declared that betting and gambling are res extra commercium or activities outside of standard commercial protections, meaning operators cannot claim a fundamental right to conduct them.
This ruling triggers a severe financial and operational crisis for India’s online gaming sector, reviving roughly Rs 2.5 lakh crore in retroactive tax liabilities that far exceed the industry’s collective cash reserves.
Major platforms like Dream11 and Gameskraft face extreme liabilities of Rs 25,000 crore and Rs 21,000 crore, respectively.
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Games of skill vs games of chance
India’s online gaming industry operates on a legal distinction between games of skill and games of chance. Courts had repeatedly held that games where skill predominates—such as rummy and, in some cases, fantasy sports—could not automatically be treated as betting or gambling.
This distinction became the foundation of the industry’s business model and legal defence, allowing many real-money gaming platforms to argue that they were offering legitimate skill-based competitions rather than gambling activities.
Regarding the tax regime, earlier, online gaming companies typically paid GST on platform fees or commissions earned from players. In 2023, however, the GST Council amended the law to levy a 28 percent tax on the full face value of player stakes, significantly increasing the industry’s tax burden.
Last week, the Supreme Court upheld both the retrospective application of these amendments and the government’s position that online money gaming involving stakes can be taxed on the full amount wagered.
“For nearly seven decades, the industry’s entire legal architecture rested on one argument: look at the nature of the game, and not merely the stake element. The court now has clearly said that this argument is irrelevant,” Aahna Mehrotra, Founder, AM Sports Law & Management Co, told ThePrint.
“The moment money is placed on an uncertain outcome, one is in the territory of betting and gambling. It does not matter whether the underlying game is rummy, fantasy cricket or anything else. The stake is the test, not the skill,” Mehrotra added.
This judgment, Mehrotra believes, gives state governments a clear roadmap to successfully defend its laws against legal challenges.
According to her, the court suggests that the legislature must use a flexible reading of Entry 34, which grants states the constitutional authority to regulate betting and gambling.
To support this, the state cannot rely on assumptions; it must present empirical evidence showing that these activities cause real social harm, just like Tamil Nadu did by using the Justice Chandru Committee to study the damaging effects of online gaming.
Finally, if that gambling power is not enough on its own, the state can use extra-constitutional backups: Entry 1, which allows laws to maintain public order, and Article 21, which protects a citizen’s fundamental right to life, liberty, and mental health.
Earlier, governments often had to justify why sweeping restrictions were necessary and proportionate to the harms they sought to address. Following this ruling, she believes courts are likely to be more deferential to legislative assessments of risks such as addiction, financial distress and mental health concerns.
What about the central law?
The most immediate implication of last week’s judgement concerns a batch of petitions pending before the Supreme Court challenging the Promotion and Regulation of Online Gaming Act, 2025, or the PROG Act.
The Central government enacted the PROG Act, which came into force on 1 October, and completely prohibited “online money games”, including fantasy sports like Dream11, online betting and gambling activities, online casino games, including poker and blackjack, and online lotteries.
However, it carves out an exception, allowing e-sports like Dota 2 or Counter-Strike, and online social games, like Candy Crush or Ludo, which are purely for recreational or educational purposes, and don’t involve money. Legally, they fall under skill-based games.
The rules for the Promotion and Regulation of Online Gaming Rules, 2026, which came into force on 1 May, stated that all forms of “online money games” are completely prohibited within India, regardless of whether they depend on skill, chance, or a mix of both. Operationalising the act, these rules establish a strict, unified federal framework for the digital sector.
The accompanying rules, which came into force on 1 May, make clear that any game falling within the category of an “online money game”is prohibited regardless of whether it is based predominantly on skill, chance or a combination of the two.
In doing so, the framework abandons the traditional legal distinction between games of skill and games of chance that has long formed the basis of the industry’s constitutional defence.
The Act, which enforces a blanket ban on real-money gaming, has been challenged in the Supreme Court, with petitioners arguing that it violates fundamental trade rights and exceeds parliamentary legislative competence.
The top court has consolidated petitions from various high courts to ensure a uniform ruling, while the government defends the legislation as necessary for protecting users.
Before the Supreme Court now, petitioners argue that under the Indian Constitution, gambling regulation falls under State lists, making the Central law unconstitutional.
The blanket ban on real-money games is being challenged for violating Article 19(1)(g), which protects the freedom to practice any profession or conduct business.
They add that the act discards decades of jurisprudence by failing to differentiate between games of skill (like rummy and poker) and games of pure chance.
The Supreme Court’s s latest ruling does not directly decide those questions. The Union government has consistently defended the PROG Act on grounds of public health, consumer protection, prevention of addiction, money laundering and financial fraud.
Mehrotra cautioned against reading this judgment as a straightforward win for the Union on that pending challenge (PROG Act).
The Union is in a stronger position in certain respects, she said, referring to the court drawing a distinction between genuine skill-based competitions with pre-announced prizes and gambling; effectively providing constitutional support for the parts of the PROG Act that permit e-sports and online social gaming. That framework now sits on firmer ground.
But on the core question of whether Parliament had the competence to impose a nationwide ban on real-money gaming, she thinks the Union’s position has become harder, not easier.
“The court has emphatically confirmed that betting and gambling is a state subject under Entry 34. The Union’s argument in the PROG Act challenge is that it is regulating online activity, not gambling per se, and that Entry 52 (public interest) provides the basis,” she said
“That argument now has to contend with a judgment that has gone out of its way to say, in the clearest possible terms, that calling something ‘online’ does not transform it into a different kind of activity for constitutional purposes. That is not a comfortable position for the Centre,” she added, emphasizing that the legal chapter is far from closed.
“In this judgement, the court reiterated that betting and gambling comes within the state matter”, Virag Gupta, cyber law expert and advocate at the SC, explained to ThePrint. He added that fantasy Sports and other games involving stacking upon uncertain outcomes – constitute betting and gambling. State Governments have the constitutional authority to prohibit online money gaming in their respective jurisdictions.
At the same time, Gupta explained that PROG Act mentions that the Central Government passed it with legislative competence in the public interest and tech and online platforms come within the Union list. However, the central government or Parliament has no jurisdiction to ban online betting and gambling platforms and the same is reflected in the PROG Act wherein no specific provision to ban such games.
As per this judgment betting and gambling comes within the state legislative competence, Gupta explained and in most of the states betting is gambling is already banned. “So, to legalize these money games, the state government will have to make specific laws making these games legal. The central government may not give backdoor entry or licensing to betting and gambling platforms in the guise of e-sports and social games”, he said, adding that “accordingly, other matters, pending before the Chief Justice Bench of the Supreme Court, challenging the Central Law (PROG Act) may become infructuous in view of this judgement”.
(Edited by Sugita Katyal)
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