India, which was once a fledgling online gaming industry with exponential growth potential, is suffering from regulatory uncertainty and tax pressure. The outcome of the present legal battles in the country’s Supreme Court, which are proceeding at a snail-pace, could stabilise or destabilise its landscape.

Fluid situation: Regulatory and tax challenges 

Recently, the Indian online gaming market evolved from fantasy sports, card games, and e-sports into what can best be described as skill-based games. India’s gaming industry was estimated to be at about $2.8 billion in 2021 by , and the latest predictions estimate that it would go up to over $5 billion by 2025. But regulatory interventions have disrupted that journey, most particularly around the definitions of “skill-based” versus “chance-based” gaming. 

This July, the Goods and Services Tax Council (GST Council) decided to tax the full value of all game entry at 28 percent, which is highly criticised by the industry, as online games were previously taxed at an 18 percent on platform fees,  a model considered profitable enough for companies and which contributed to the expansion of the industry. But by taxing the entire deposits – whatever results or win, operators  insist that they cannot absorb the enormous costs. 

To industry stakeholders, it’s an “extremely unfortunate decision as charging a 28 percent tax on full face value will lead to a nearly 1000 percent increase in taxation and prove catastrophic for the industry,” said Malay Kumar Shukla, secretary of E-Gaming Federation, in a statement. “A tax burden where taxes exceed revenues will not only make the online gaming industry unviable but also boost black-market operators at the expense of legitimate tax-paying players, further undermining the industry’s image and capacity to survive,” Shukla added. 

At present, the Indian Supreme Court is hearing two landmark cases which can change the legal status of the online gaming industry significantly. The first is the appeal by Karnataka government against a high court ruling nullifying the blanket ban of the government on all forms of online gambling, including skill-games with stakes. This case carries wider implications since other states such as Tamil Nadu have also implemented similar bans, even when the high courts dismissed the state’s objections. 

A Supreme Court judgment in favour of state bans can also topple the regional legal protection for the industry, and the industry will have to restrain its operations in key markets. Conversely, a ruling in favour of skill-based games can give the sector a stable legal framework at the national level and protect the same from ad-hoc state regulations. 

The second is the appeal by Directorate General of GST Intelligence (DGGI) relating to Gameskraft Technologies over an unprecedented tax demand of $2.6 billion. In this case, Karnataka High Court ruled in favour of Gameskraft, distinguishing skill-based games from gambling and thus invalidating the DGGI’s hefty claim. The judgment brought out the significance of the distinction between skill and chance – one of the most crucial distinctions for tax purposes. The precedent set may impact every operator in the industry while this demarcation between the two forms of license can become stronger or blur further due to this decision from the Supreme Court. 

How delays impact the sector 

The industry’s wait for the Supreme Court’s rulings has effectively put its growth and stability on hold. The matter, which is currently sub-judice, has almost entirely disappeared from the pages of the mainstream media as the country’s apex court slowly processes the case. 

While speaking to Vixio, Roland Landers, CEO of the All India Gaming Federation (AIGF), highlighted how the tax burden and ongoing legal ambiguity have led to substantial layoffs, with companies like Mobile Premier League and Spartan Poker cutting large portions of their workforce. While major players struggle to adapt, smaller startups and mid-sized firms face an existential threat, as margins shrink and operational costs surge. 

Even as Nazara Technologies, and other high-profile companies like it continue to strategise their investment within this industry, the general investor sentiment has cooled, particularly from foreign investors, given their wariness over regulatory instability. Such hesitation might dilute India’s competitive advantage in gaming, allowing other countries to capitalise on the situation. 

Broader implications of this dilemma 

The government’s proposed increased tax rate will undoubtedly generate needed revenues for state coffers. The new GST regime is expected to bring in revenues of around $1.7 billion annually from the gaming industry, according to estimates by . However, according to industry stakeholders, such a high tax burden will likely do just the opposite: push players and companies into the largely unregulated, grey market. This would result in tax losses, depriving the government of revenue while weakening consumer protections. 

While the gaming industry has adopted measures like cashback offers and player-focused GST absorption to ease consumer costs, these adjustments are temporary and unsustainable under current tax pressures. Experts advocate a gross gaming revenue model, where taxes are levied on platform earnings rather than player deposits. Such a model would alleviate industry concerns while ensuring a steady revenue stream for the government without stifling growth or risking regulatory non-compliance. 

Looking ahead: Prospective consequences and industry outlook 

The Supreme Court’s decisions on these cases will shape the online gaming industry in India for generations to come. The matter, which is currently sub-judice, has almost entirely disappeared from the pages of the mainstream media as the country’s apex court slowly processes the case.  

If the court sustains existing legal protections for skill games and rejects “excessive retroactive tax claims,” then there is a possibility the online gaming industry will rebound with renewed growth and stability. However, if the Court rules with the states on blanket bans and supports full tax claims, it would possibly bring the industry to a grinding halt with hundreds of thousands of jobs hanging in the balance, and players might look for less secure platforms. The industry thus holds its breath as it waits for clarity as the Court debates. Ultimately, this journey of the Indian online gaming industry seems a greater act in regulation balancing and a call for more apparent, consistent policies to help the industry grow safely without endangering state interest. As the Supreme Court is contemplating on the legality of the challenges posed by the governments of Karnataka, Tamil Nadu and the DGGI, the question remains: Will India’s gaming sector be boosted or stifled by regulation? 

Stay in the loop with the latest updates and news for the upcoming SiGMA Europe in Malta from November 11 to 14. 

Latest News