The Online Gaming Gold Rush: Understanding India's Evolving Legal Landscape

BRB Legal
Jul 7
5 min read

India's online gaming industry is in the midst of a gold rush. With a user base of over 442 million, it's the second-largest gaming community in the world and is projected to become a multi-billion dollar industry. This explosive growth, fuelled by a young, tech-savvy population and increasing internet penetration, has attracted significant investment and innovation. However, this digital frontier is also marked by a complex and rapidly evolving legal landscape, creating a high-stakes environment for startups, innovators, and corporate entities alike.

For any company looking to strike gold in this sector, understanding the shifting regulatory terrain is not just advisable—it's essential for survival. From the contentious distinction between "games of skill" and "games of chance" to a new, stringent tax regime and a patchwork of state-level laws, the rules of the game are constantly changing.

The Decisive Battle: Game of Skill vs. Game of Chance

At the heart of India's gaming legislation is the long-standing legal distinction between a "game of skill" and a "game of chance." Historically, Indian courts have held that games, where the outcome is predominantly determined by a player's expertise, strategy, or knowledge, are considered games of skill and are protected as legitimate business activities under the Constitution. Classic examples include rummy, chess and more recently, fantasy sports. Conversely, games where luck is the primary determinant of the outcome are classified as games of chance, which are treated as gambling and are heavily restricted or banned in most states.

The Supreme Court established the "dominant element" test to make this determination on a case-by-case basis. This distinction has been the bedrock upon which the real-money gaming industry has been built. However, the line has become increasingly blurred with the government's recent actions, particularly in the realm of taxation.

The Game Changer: The 28% GST Regime

In what has been the most disruptive development for the industry, the GST Council, in July 2023, imposed a uniform 28% Goods and Services Tax (GST) on the full face value of bets placed in online money gaming, effective October 2023. This decision eliminated the previous distinction where games of skill were taxed at 18% on the platform fee (Gross Gaming Revenue or GGR), while games of chance were taxed at 28% on the full contest entry amount.

The impact has been seismic:

Increased Operational Costs: The tax is now levied on the entire amount a player deposits, not just the revenue earned by the gaming platform. This has dramatically increased the cost of operations, with many companies having to absorb the tax burden to retain users.
Stalled Growth and Financial Strain: Many companies, especially startups operating on thin margins, have reported significant revenue declines or stagnation since the new tax was implemented. The industry is also battling retrospective tax demands from the government, dating back to 2017, which amount to crores of rupees and threaten the viability of many businesses.
Legal Challenges: The new GST regime is currently under challenge before the Supreme Court. The industry is hoping for a verdict that could potentially revert to the GGR-based taxation model for games of skill. The Centre, however, has argued that any game involving stakes, regardless of skill, amounts to betting and should be taxed at the highest rate.

Beyond the 28% GST, the government also introduced a 30% tax on net winnings from online games, which is deducted at source (TDS) by the gaming platforms.

A Patchwork of State Regulations: The Case of Tamil Nadu

Adding another layer of complexity is the fact that "betting and gambling" is a state subject under the Indian Constitution, leading to a fragmented regulatory environment. While some states like Nagaland and Sikkim have licensing regimes for online games, others like Telangana and Andhra Pradesh have banned all real-money online gaming.

Tamil Nadu has been particularly active, enacting the Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022. Initially, this act banned games like rummy and poker, classifying them as games of chance. While the Madras High Court later struck down the ban on these specific skill-based games, it upheld the state's power to regulate them.

In February 2025, the Tamil Nadu Online Gaming Authority introduced stringent regulations for real-money games, which were recently upheld by the Madras High Court in June 2025. These rules include:

A mandatory "night ban" on gameplay between 12 midnight and 5 a.m.
Required Aadhaar-based KYC verification for all players.
Prohibitions on minors participating in real-money games.
Mandatory warnings about gaming addiction.

These state-specific rules create significant compliance challenges for gaming companies operating nationwide, highlighting the growing demand for a unified central regulatory framework.

The Path Forward: Towards a Unified Framework?

The online gaming industry is at a critical crossroads. The regulatory uncertainty, coupled with the high tax burden, has hindered growth and deterred foreign investment. There is a growing consensus that a clear, centralised regulatory framework is needed to distinguish legitimate gaming platforms from illegal betting and gambling operations.

The central government has shown intent to create such a framework. In 2023, the Ministry of Electronics and Information Technology (MeitY) introduced amendments to the IT Rules to regulate online gaming through a self-regulatory body (SRB) model, though its implementation has been delayed. More recently, in February 2025, reports indicated that the Home Ministry has formed a committee to explore a single regulatory framework.

For corporates, innovators, and startups in the gaming space, navigating this "gold rush" requires constant vigilance. Staying abreast of Supreme Court rulings, GST Council decisions, and state-level amendments is crucial. The future of this booming industry will depend on a balanced regulatory approach that fosters innovation while ensuring consumer protection and a stable, predictable legal environment.

References:

The Online Gaming Gold Rush: Understanding India's Evolving Legal Landscape

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