The Union Minister of State for Electronics & IT, Rajeev Chandrasekhar, has stressed that the Ministry (MeitY) is ready to intervene in the self-regulatory process of online gaming in the country, prescribed by the latest amendments to the IT Rules.

“Online gaming, like many parts of the digital economy, is driven by innovation by the young, and we don’t want the government to regulate what young Indians do,” MoS Chandrasekhar said earlier and explained that the amendments intended to have the Indian gaming industry work with other relevant stakeholders to “create a credible institution that will then regulate that space.”

Nevertheless, if the industry doesn’t propose self-regulatory organizations (SROs) within the prescribed three months after the IT Rules were notified on April 6, MeitY will be forced to undertake the task of forming the regulatory bodies and certifying permissible online real money games.

Quicker reactions from the IT Ministry were prompted by recent media reports that certain Big Tech companies are having difficulties deciding which particular apps to remove from their stores after MeitY issued blocking orders for 138 betting and 94 loan lending apps in February.

“What the article has alerted us to is that we can’t keep things hanging, waiting for an SRO,” Chandrasekhar said. “In the interim, the government can certify what is a permissible game, what is wagering, what is not wagering.”

Homegrown Industry Hurries to Make Gov’t Intervention Unnecessary

In the end, however, the self-regulation process over online gaming in India might function as intended without needing further intervention by the Central Government, as the homegrown industry has been busy preparing the proposals for at least two SROs.

The first proposal is under the flag of the All India Gaming Federation (AIGF), and the second one is a cooperation between members of the E-Gaming Federation (EGF) and the Federation of Indian Fantasy Sports (FIFS)

AIGF’s Model Charter: International Best Practices and Responsible Gaming

In the last days of May, the AIGF circulated a draft model charter for online gaming Self-Regulatory Bodies (SRBs) modeled on international best practices and focused on responsible gaming and user protection from various harms, including the protection of minors.

The draft charter was sent to stakeholders such as “civil society, lawyers, mental health experts, player welfare representatives, and the gaming industry” for comments and feedback. According to AIGF’s declared intent, the model charter is to function as a “broad principled document” used by all online gaming industry SRBs.

“The key idea is that any charter for all SRBs should, firstly, cover all the obligations in the IT Rules [through which the gaming rules have been brought], secondly, it should also go a step ahead and reflect broad international best practices and finally, should keep user protection as the main focus,” the AIGF communication to stakeholders said.

Besides fair play and responsible gaming policies, including measures such as time and money spending limits, parental controls, and age-rating mechanisms, the proposed charter covers several regulatory aspects like the functioning of the SRBs, scope and the time limit of member and game verifications, advertising restrictions, grievance redressals and appeals, and more.

The EGF-FIFS Proposal: 7 Tests to Certify Skill from Chance Games

According to reports, the other SRO proposal, which has been shaping up, is a joint effort by members of the two other major gaming industry bodies in India: EGF and FIFS.

This proposal focused on devising a robust mechanism to test and differentiate individual games along the skill vs. chance axis, an issue that has been a source of debate and judicial dispute for decades.

“There will be seven tests based on which games which apply for certification with us will be adjudged if they are a game of skill or chance. All games which apply for certification will have to pass six of these to get a provisional certification to operate in India,” a knowledgeable but anonymous source explained.

“The games will then get up to 3 more months to get the seventh certification, following which they can apply for the final certificate,” the source added.

An SRO by IAMAI Seems Ruled Out for the Moment

In the last few months, members of India’s online gaming industry had to fight off ambitions by the Internet and Mobile Association of India (IAMAI) to form an SRO, as gaming companies saw the proposal as an attempt by Big Tech to gain a certain degree of control over Indian online gaming regulation.

“We are going by the principle of accountability and transparency. The government will certainly not allow the industry to hijack the self-regulatory organization,” MoS Chandrasekhar had clarified earlier.

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Recent media reports reveal that several foreign sports betting and casino gaming apps blocked in India by the Union Government are still operating and advertising across different digital platforms.

In February this year, the Central Ministry of Electronics and IT (MeitY) issued blocking orders for 232 illegal apps, including 138 betting and gambling applications. Most of the apps have been linked to China, but the list also contained a number of international i-gaming platforms, such as Betway, Lotus365, and Fun88.

Betway, for example, has been spotted to advertise aggressively during the IPL season on several digital platforms, including, DailyHunt, a news aggregator; Josh, a web portal for sharing short videos; Quora, a Q&A platform.

Besides the blocking orders by MeitY, the Central Government, in the face of the Ministry of Information and Broadcasting (MIB), has issued a total of three advisories directing print, electronic, and digital media, including outdoor advertising, to refrain from allowing ads by illegal gambling and betting businesses.

“It’s impossible for the government to monitor everything,” commented technology and gaming lawyer Jay Sayta, but added that companies that violate the MIB advisories and the IT Rules by advertising banned apps risk losing “their intermediary status and potential blocking of websites, criminal prosecution under state gaming laws and action under the Consumer Protection Act.”

A Broadcasting Ministry source explains that, “We routinely send notices to companies as and when things are brought to our notice, but the problem is that not many people complain for us to take action.”

How does Banned Gaming App Marketing Function?

Present-day marketing strategies employed by banned gaming apps are well adapted to present-day realities and revolve around celebrity endorsements from cricket and other sports like football and tennis, TV, cinema, and other fields, including social media influencers.

Lotus365 has built a solid 1.55 lakh follower base on Instagram with more than 700 posts and claims of being “India’s first licensed and legal company.”

An innovative solution by Fun88 is to advertise on MyGate – an app used to manage large housing developments such as apartment complexes and closed-gate communities.

Betway, who call themselves “an online gambling company, offering first-class sports betting and casino entertainment,” use their Twitter handle to post videos with IPL match predictions by a famous cricketer. Advertising campaigns by the app entice readers to “Make some noise in the T20 blast! Predict in play. Predict Rs 500 and get Rs 250 free bonus.”

The government of India is working to regulate the country’s online gaming space through self-regulatory organizations (SROs), backed up by enforcement actions against non-complying entities, including the attempts to effectively ban certain apps.

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The Enforcement Directorate (ED) announced in a press release on May 24 that it had conducted search and seizure operations at 25 locations in 5 states directed against offshore gaming companies and online platforms operating in India.

The case is for alleged violations of the Foreign Exchange Management Act, 1999 (FEMA), the siphoning of roughly ₹4,000 crores abroad through shell firms, and the misdeclaration of circumstances.

“These online gaming companies/websites are registered in small island countries like Curacao, Malta, and Cyprus. However, all of them are linked to Indian Bank Accounts opened in the name of proxy persons who have no links with online gaming activity,” the press release clarifies.

“The amount so collected from general public through gaming websites is then routed through multiple bank accounts and finally remitted out of India by mis-declaring the purpose of remittances against import of services / goods.”

ED carried out the raids on Monday and Tuesday, May 22 and 23, in Delhi (11 locations), Gujarat (7), Maharashtra (4), Madhya Pradesh (2), and Andhra Pradesh (1), including premises linked to Hawala operators.

Cash worth ₹19.55 lakh and $2,695, Aadhar and PAN cards, documents, and electronic devices were seized during the raids, and 55 bank accounts linked to the illicit activities were frozen.

According to ED, the perpetrators conducted their operations from remote computers and servers via remote access apps like Anydesk and Team Viewer to avoid detection.

Recent efforts by the Ministry of Electronics and IT (MeitY) to introduce central-level regulation to online gaming in India may soon put an end to the problem at the root by making real money gaming happen on India-registered platforms, and thus relieve ED from some of its troubles.

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The High Court of Karnataka has observed that GST is not applicable to the prize pools of skill games and has quashed an ambitious ₹21,000+ crore ($2.52 billion) show cause notice (SCN) issued by GST enforcement authorities against online gaming company Gameskraft Technologies Pvt. Ltd. (GTPL), alleging GST evasion on the grandest of scales.

For comparison, the latest EY report on India’s Media & Entertainment (M&E) sector estimates the size of the country’s whole online gaming sector for 2022 at ₹13,500 crore ($1.62 billion).

The SCN was produced by the Directorate General of GST Intelligence (DGGI) last September and demanded payment of 28% GST over the bulk amount of entry fees, inclusive of prize pools, on games offered by GTPL between 2017 and June 30, 2022, amounting to ₹77,000 crore.

Bengaluru-based Gameskraft operates RummyCulture, Gamezy, RummyPartner, and other online gaming platforms and has been charging 18% GST over its Gross Gaming Revenue (GGR) or trade margin, which is only a small portion of entry fees.

The Bench’s Reasoning follows Apex Court

Grounding its reasoning on several decisions of the Supreme Court, the Karnataka HC single judge bench of Justice S. R. Krishna Kumar has held that “There is a distinct difference between games of skill and games of chance,” and games like rummy are predominantly skill-based regardless whether played online or offline and for stakes or not.

Therefore, the bench reasoned, Section 7(2)(a) and Entry 6 of Schedule III of the CGST Act, 2017, which combined postulate that “actionable claims, other than lottery, betting and gambling shall be treated neither as a supply of goods nor a supply of services,” would mean that skill gaming does not qualify as “supply” in the sense of Indian indirect tax legislation.

Prize pools are actionable claims and don’t participate in forming the operator’s revenue because the money is kept in special accounts and is directly transferred to prize winners (who pay income tax on their earnings).

The Decision Brings Much-Needed Clarity on GST Valuation Issue

While legal experts comment that the Revenue is likely to appeal the Karnataka HC decision before the Supreme Court, for the time being, the ruling brings some dose of much-needed clarity on how online gaming will be treated in terms of GST levy.

The development on the judicial front comes one month before the expected time of the upcoming 50th meeting of the GST Council, which, according to informed sources, is likely to finally make a decision on the matter based on revised recommendations of the special GoM (Group of Ministers) on online gaming, horse racing, and casinos.

Stakeholders Welcome the Karnataka HC Decision

“This landmark decision by the Hon’ble Karnataka High Court which reiterates six decades of jurisprudence will greatly aid gaming start-ups across India to work towards building the industry and ensure its healthy growth,” Roland Landers, CEO of the All India Gaming Federation (AIGF) welcomed the single bench verdict.

“The judgment reiterates the legal position in relation to skill-based gaming intermediaries and international best practices on taxation. A positive affirmation on GGR method of valuation on actual value addition by the platform service provider,” commented Asish Philip Abraham, Partner at Lakshmikumaran & Sridharan Attorneys

“This will have a positive impact on GST Council to consider valuation for online skill games based on Gross Gaming revenue (GGR), which is internationally accepted. As Hon’ble Finance Minister observed, stability in tax policy will boost investment in the sector,” he added.

At the beginning of May, Union Finance Minister Nirmala Sitharaman assured foreign investors that once the government’s tax policy on online gaming is finalized, the clarity will facilitate investment in the sector.

“Once the policy certainty arrives, taxation becomes more … clear, it will attract investors,” FM Sitharaman said.

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The Internet and Mobile Association of India (IAMAI) reportedly encountered a refusal when it quietly proposed to major Indian online gaming companies to form a Self-Regulatory Organization (SRO), as businesses were wary that the Association was practically a “mouthpiece of Big Tech.”

According to the reports, executives of gaming companies, including Dream11, Mobile Premier League (MPL), Games24x7, and Zupee, politely expressed a view that IAMAI’s interests do not align with theirs.

The gaming company representatives also implied that work on forming SROs under the guidelines of the latest IT Rules Amendments was already underway in cooperation with specialized industry bodies such as the All India Gaming Federation (AIGF), the E-Gaming Federation (EGF), and the Federation of Indian Fantasy Sports (FIFS).

“After the draft rules were notified by the government, the IAMAI did approach us along with other leading names to form an SRO under them, but we have said no to this idea,” a source from the gaming industry said.

IAMAI’s Pushes Get Consistently Rejected

This is not the first time IAMAI’s pushes into the realm of online gaming hit a wall. In January, Minister of State for Electronics and IT Rajeev Chandrasekhar had to cool down the Internet Association’s ambitions to regulate online gaming.

In December 2022, IAMAI claimed in a statement that it was “best suited to set up and manage the online gaming SRO,” considering the organization’s previous experience with edtech and online curated content SROs working together with the Ministry of Consumer Affairs and the Ministry of Information & Broadcasting (MIB).

“We are going by the principle of accountability and transparency. The government will certainly not allow the industry to hijack the self-regulatory organization,” MoS Chandrasekhar said and stressed that all stakeholders would be adequately represented in the SROs.

A month later, in February this year, gaming businesses were forced to distance themselves from the position expressed by IAMAI that the IT Rules amendments for online gaming being drafted at the time were “right on intent but poor on scoping.”

“The focus of gaming companies right now is to set up SROs that are credible. In any case, the instruction from the government has been that the SRO will have to be an industry-represented body and not an industry-dominated body… accordingly companies are working with specialized industry associations to prepare the proposals,” a source from a gaming company said.

EGF Expects SRO to be Ready by the End of May

E-Gaming Federation Secretary Malay Kumar Shukla announced that the EGF is working to form online gaming SROs that should be ready by the end of May, well within the three-month timeframe set by the Center.

The SROs will include educational, psychological, child protection, and law enforcement experts, besides the representatives of the industry and the Union Government, as required by the Ministry of Electronics and IT (MeitY) guidelines.

The Self-Regulatory Organizations will have vast powers to regulate and oversee online gaming space within the framework provided by the appropriate legal texts, as well as to decide which online real money games are permissible and which games are to be denied such a status.

According to the EGF, SROs will draw the line of game permissibility along with Supreme Court judgments that permit games of skill but forbid games of chance.

“For now, there will not be a disruption as gaming operators offer skill-based gaming, but SROs will regulate adherence for future launches,” Secretary Shukla clarified.

SROs will also have the power to initiate legal action, for example, with blanket gaming bans in Tamil Nadu, Telangana, Kerala, and other states.

MoS Rajeev Chandrasekhar Explained the Logic behind SROs

At the beginning of April, a couple of days after the IT Amendment Rules, 2023 were notified, Union MoS for IT Rajeev Chandrasekhar explained his government’s approach to online gaming regulation in India and why SROs were chosen to be the main vehicle for this.

“Online gaming, like many parts of the digital economy, is driven by innovation by the young, and we don’t want the government to regulate what young Indians do,” Chandrasekhar said.

“We are open to having industry and other stakeholders create a credible institution that will then regulate that space,” he added.

States Have No Business Trying to Regulate the Internet

According to the Minister, there is a large consensus in Indian society that gambling and betting should not be allowed, but when these activities are online, States do not have the means to interfere.

“Different states are trying to regulate betting and gambling; now it’s not necessary for them to do it. Anything online has to be regulated by the Government of India, and this framework enables the states to not worry about their subjects in this regard,” he pointed out.

The Minister of State for IT explained the process of creating the SROs and guaranteeing they will have the necessary capabilities to deliver their mission.

“We are at an early stage of creating these capacities in these SROs. We are creating and designing them; we are making sure that the representation is broad enough,” he pointed out. “There will be terms of reference that will ensure conditions that will involve failing a game – wagering, betting, if it causes harm to a child, including addiction, and if it involves harm to a gamer.”

“If you fail these tests, then it can’t be certified by the SRO. So a small slice of games in India will be prohibited, but a large expanse including real money games will be open for expansion,” Chandrasekhar concluded.

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Touchstone Partners is a leading law firm in India working with complex topics such as cross-border advice and foreign investments. Having been advisories to prominent foreign operators within online gambling, they have plenty of insight into Indian gambling and gaming law.

Watch the full interview with Uday Walia

Looking at gambling specifically, the legal landscape in India is very different from European countries. India has been dragging the Public Gambling Act along for a long time. Could you expand a bit on what it means in regards to how a country can have such an old 1800s type of law? And why has nothing happened since? I would also ask if you could expand on the concept of games of skill and games of chance.

“Sure, yeah, it’s curious. There’s been a lot of debate over anti-colonial laws and legislation in India, but the gambling legislation was something as if written somewhere in bleak England, where dark and dingy gambling dens and public gaming houses were the norms. And that legislation just never went away.

States have the power to amend the legislation for themselves, so various states have experimented over the years, with a few trying to regulate and license it, but there hasn’t been an overall legislative push.

And at the advent of the Internet, most gambling is now done there. So why are we trying to apply 19th-century legislation to the Internet?

If I place a bet from my living room on the Internet, is my living room now the sort of gambling den that you’re worried about? There are some political connotations around gambling that we’ve seen that mean that successive governments haven’t answered those questions. It also depends on the judge. If the judge likes horse racing, they’ll go on about why it’s a game of skill. But if they don’t like horse racing, they’ll focus on the social evils of gambling.

There was a case in the late 90s around a Supreme Court judgment around horse racing where they said look; there needs to be a distinction between a game of skill and a game of chance. It then went on to other games like cards. I think Bridge is seen as a cerebral game, so it’s a game of skill. And then it comes to Rummy. Some high courts say it’s a game of skill; others have judges that don’t play Rummy and will decide it’s a game of skill or chance based on their personal understanding of the game.

We had a large UK-based betting platform asking us [Touchstone Partners] if betting on the outcome of the next ball in a game of cricket is chance. While our instinctive answer was yes, he said no; it might not be because it depends on the bowler, the batsman, tactics, and in what stage the game is at. If you’d want to, you could make an argument around it. And as such, a game of chance is determined entirely or in part by luck. The throw of dice, the turning of the wheel, and the shuffling of cards are all modes of chance.

I think it just goes down to a very subjective determination of what is a game of chance, and what is a game of skill.”

I’m curious to hear your thoughts about the GST and the TDS. What would the TDS mean for someone in India who is now gaming?

“I think it means that the state is at least recognizing that gambling and gaming is prevalent. They recognize that winnings represent income. […] The cynical me says that the moment the sort of rightly avaricious collectors and assessing officers get involved, they’re not going to let go of the revenue because there is an enormous amount of revenue being generated. There’s nothing like money and taxes to focus the mind of the government to say, ‘This is something in the public interest, and look at what we can do with the money generated’.

Then there’s GST, and it depends on how they play it. Is it the platform fee? The entry fee? I think it’s helpful, but it doesn’t answer the basic question of if gambling and betting is permitted or not.”

I think that Tamil Nadu is a quite interesting state, having tried to ban gambling three times and finally succeeded. There have been quite a lot of articles coming out from there saying that people are killing themselves. There’s a big push that gambling actually destroys people’s lives, and they’ve had reports of 40 suicides in 2023 alone. It is, obviously, extremely upsetting and unfortunate, but it doesn’t match what we see in the rest of the world, especially in regulated markets when it comes to gambling.

Looking at India as a whole, gambling problems seem to reach over 7.2% of all gamblers, which is similar to Australia, another unregulated market.

But there have been recent studies from the UK, one of the harshest markets when it comes to gambling regulation. They have managed to go down from 1.3% in 2018 to 0.2% in 2022. So how come there’s still this strong idea that banning gambling is supposed to solve everything when it’s clear that regulation actively helps people with gambling problems?

“I think it’s all coming out of female votes, because the perception of gambling is very different if you are a rural woman versus if you’re a rural man. For instance, in fishing communities, a lot of fishermen are daily wage earners, and the fear is, just like with alcohol, that they’ll spend their earnings on it [gambling] before they reach home.

It’s coming across as the government cares for them [the women], and that this paternalistic approach is something that appeals to them. However, I think the Indian voter is far more sophisticated than that. This might have worked 20, 30 years ago, but the Indian voter has moved on.

But political parties want to be seen as woman voter friendly. I think the woman voter is an important factor in Indian politics, so it could be that it’s something they want to cater to in Tamil Nadu.

One opportunity that India has in regard to regulation is the Aadhar card. The same concept is used in other regulated markets already, like Sweden. Could the Aadhar card be something that could be used for KYC for online gambling in India?

“Absolutely! We remain one of the few countries where you can’t just make an online payment without punching in a password and an OTP [one time password] that comes to your mobile phone. The entire banking system is connected with sending OTPs to the mobile phone.

In order to even open a payment wallet you need to pass a proper KYC procedure. The Aadhar card is linked to your phone, and there’s an OTP that is received on your phone which you need to enter to complete the KYC.

So for us to offer India to develop a system where payments could only be authorized from bank accounts or from authorized payment wallets is something they can do very easily. And it’s the answer to money laundering. It’s the answer to the psychological fears they have. And since the money is sent out directly to the platform, it helps with GST and TDS collection.”

If you would look at India from a five-year perspective, what do you think will happen going forward?

“The penetration of the smartphone is going to increase, and I think with this legislation coming in and talks about GST, I think that within five years we are actually going to see legislation that regulates it. And we are finally going to do away with this game of skill and game of chance distinction. People are going to see it [gambling] as more of a benign indulgence.”

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The All India Gaming Federation (AIGF) has renewed its legal challenge at the High Court of Madras against the constitutional validity of the freshly enacted second online gaming ban in Tamil Nadu. This time, AIGF’s petition is backed up by Indian online gaming companies Gameskraft, Games24x7, and Head Digital Works.

AIGF had already filed a challenge against the ban last year when it was first passed as an Ordinance by Chief Minister M. K. Stalin’s cabinet, but the Madras HC allowed the petitioners to withdraw their case for the time being after the ban lapsed without being notified.

The Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022, was published in the TN Gazette on April 10, after it was sent to Governor R. N. Ravi for approval for a second time.

On Friday, April 21, the state government notified the “Tamil Nadu Online Gaming Authority and Regulation of Online Games Rules,” and the second online gaming ban in TN specifically directed against rummy and poker came into force.

A number of real money online skill gaming platforms that offer these games, including Poker Baazi, A23, Classic Rummy, and RummyCircle, started geo-blocking access from Tamil Nadu to their paid products on April 24.

Madras HC Bench Refuses Interim Stay against Online Gaming Ban

Madras High Court’s first division bench comprising Acting Chief Justice T. Raja and Justice D. Bharatha Chakravarthy held the first hearing on the case on Thursday, April 27, but refused any interim suspending measures against the disputed Act until the state’s position on the matter was heard.

1. K. Stalin’s government, represented by senior counsel Kapil Sibal, received 6 weeks to frame their reply until the next hearing, which was scheduled for June 3, after the court vacation.

Senior counsels Aryama Sundaram, appearing for AIGF, and Abhishek Manu Singhvi, appearing for the real money gaming companies, pleaded that only the Union Government had legal competence over games of skill and the State’s Act had mistakenly labeled poker and rummy as games of chance.

“It is the people of Tamil Nadu and not the online gaming companies, which are here to make profits that must be protected by the court. Online gaming platforms are making money and ruining families,” answered TN counsel Sibal.

“While liquor, lottery, and horse race is permitted in the state, then why the state is against the games of skill?” argued senior counsel Singhvi.

States Have No Business Trying to Regulate the Internet

Union MoS for Electronics & IT Rajeev Chandrasekhar, whose ministry recently was appointed as the nodal department for online gaming and later notified amendments to the IT Rules regulating the sector, said that attempts by state governments at legislating on things over the internet like online gaming were “meaningless.”

“As we saw recently, Tamil Nadu enacted its own law, essentially creating a regulatory minefield of uncertainty, ambiguity, confusion, etc.,” the IT Minister of State wrote in a Twitter Spaces session.

“The law also completely misunderstands technology and prohibits random number generators, which are an integral part of fairness for online gaming,” AIGF CEO Roland Landers had commented earlier.

“This is disappointing as it disregards the six decades of established legal jurisprudence and also the recent judgment of the Madras HC, which struck down a similar law.”

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On Thursday, April 6, the Union Ministry of Electronics and Information Technology (MeitY) notified the 2023 amendments to the IT Rules after “extensive consultation” with various stakeholders, per the Minister of State for Electronics & IT Rajeev Chandrasekhar.

At the end of December last year, the Central Government appointed MeitY as the nodal ministry for online gaming through amendments to the Allocation of Business Rules, 1961.

Shortly after that, at the beginning of January, MeitY proposed draft amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, and started closed-door consultations with gaming companies and industry bodies, gamer, parent, safety, and health organizations, and other stakeholders.

Rules Link to RBI Standards for KYC

The now finalized and notified Information Technology Amendment Rules, 2023, clarify that the Reserve Bank of India (RBI) requirements for ID verification when opening a bank account will apply to the KYC (Know-Your-Customer) checks needed before making a deposit for a game.

This answers gaming businesses’ earlier concerns that the originally proposed draft required full-scale KYC verifications with heavy video-based identification for even very small deposits.

Industry reps feared this excessive burden would be detrimental to smaller businesses and had asked for a graded approach to KYC, not stricter than RBI’s standards.

What Else Is New on the Legal Side of Online Gaming

Besides making KYC verifications mandatory for playing games with real money online, the 2023 IT Rules Amendments introduce several new definitions and clarifications to Indian legal space and are, in practice, the country’s first national legislation over online gaming.

The IT Rules define fundamental legal terms like “online game,” “online gaming intermediary,” “self-regulatory organization (SRO),” and quite importantly – “permissible online real money game.”

All non-money games are by definition permissible, and the at least three SROs that will be initially appointed will be mandated to verify any online real money games that “does not involve wagering on any outcome” as permissible.

“We are dealing with a framework which allows for all online gaming to be determined as permissible or not by an SRO, and there will be multiple SROs,” Minister of State Chandrasekhar said. “If wagering is involved, the SRO will be able to say that those online games are not permissible,” he clarified.

It remains to be seen exactly where the SROs will find the balance between “permissible online real money game” and “no wagering on any outcome,” as a simple win of a prize in an online contest is, in fact, an outcome.

Responsible Gaming in the New Legal Framework

The new legal framework over online games also contains India’s first proper national responsible gaming (RG) measure: a restriction on credits for online real money players. A similar but stricter RG measure – a full ban on gambling with credit cards, was implemented in the UK as recently as April 2020.

A new Subrule (13) under Rule (4) of the Indian IT Rules now prohibits online gaming intermediaries from providing credits or allowing third parties to do so for the purpose of playing a permissible online real money game.

Chhattisgarh Gambling Prohibition 

Two weeks before the IT Rules Amendments for 2023 were notified, on March 23, the Chhattisgarh Gambling (Prohibition) Act, 2022 was notified after the new Chhattisgarh State Governor Biswa Bhusan Harichandan gave his assent to the bill on March 15, according to media reports.

The Chhattisgarh Legal Assembly passed the Act by a voice vote on January 4, motivated by the spread of the illegal Mahadev sports betting app in the state and the more than 250 arrests connected to it.

Games of skill are left outside the scope of the new law. It treats only games of chance, intending to “curb the tendency of extracting illegal money by involving in gambling and Satta and to prevent the social event of gambling and online gambling and the consequent financial trouble on the families in the State of Chhattisgarh.”

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The Union Government has listened to the concerns of the Indian online gaming industry, and on March 24, the Finance Bill 2023 was adopted by the Lok Sabha with the corresponding amendments.

Just like the industry requested, the new regime for TDS (Tax Deducted at Source) over winnings from online gaming will become applicable from April 1 instead of July 1, 2023 and will spare gaming businesses and gamers lots of trouble.

The originally proposed draft of the Finance Bill introduced a new section 194BA to the Income Tax Act specifically dealing with TDS on winnings from online games, setting them aside from gambling and betting.

At the same time, the previously existing Section 194B was updated to cover, starting from April 1, 2023, all winnings “from gambling or betting of any form or nature whatsoever.” The amendments also clarified that the ₹10,000 threshold below which TDS is not applicable was valid for the aggregate amount of gambling and betting winning over the financial year, and not for separate withdrawals.

The new Section 194BA did not mention any TDS-free threshold but specified that TDS was applicable on net winnings, i.e., the aggregate amount of winnings from online games from the whole financial year minus all entry fees paid for the period.

The Problem with July 1

The practical problem with Section 194BA lay with the date it was intended to come into force – July 1, 2023. This implied that businesses and gamers would have to comply with two major changes in regulatory requirements just three months apart from each other.

This shifting burden would not only drain small companies out of resources but also create ambiguity and have considerable potential for misinterpretation when reporting the financial year.

India’s online gaming industry bodies were quick to react and sent a joint letter to the Central Board of Direct Taxes (CBDT) urging the effective date of the new Section 194BA to be moved to April 1, or, if that was infeasible, the amendments to the old Section 194B to come into force on July 1 together with 194BA.

Reactions from the Industry

After the Finance Bill 2023 answered the sector’s concerns, industry bodies representatives voiced their appreciation.

“We are grateful to the Government for accepting the industry’s appeal & ensuring a smooth transition to the new TDS regime for Online Gaming in the Finance Bill 2023,” said the Federation of Indian Fantasy Sports (FIFS) Director General Joy Bhattacharjya.

“We also look forward to engaging with the Government on the rules for computation of net winnings and are hopeful that industry inputs will be given a favorable consideration,” he added.

Still, several gaming company CEOs expressed concerns that the removal of the ₹10,000 threshold would deter a lot of gamers who play with small amounts.

Update: CBDT Issues Guidelines on How to Calculate TDS

On May 22, 2023, the Central Board of Direct Taxes (CBDT) issued guidelines (Circular No. 5 of 2023) clarifying how to treat winnings from online games and how to calculate TDS.

The circular is answering a number of technical questions, such as how are multiple accounts of one user at one or more platforms to be treated, whether deposits made of loaded amounts are taxable, how bonuses and other incentives are to be calculated, at what point an amount should be considered withdrawn, and other issues.

In order to offer relief in the compliance burden for insignificant amounts, TDS doesn’t need to be deducted from withdrawals containing net winnings under ₹100 per month, but tax obligation is to be balanced at the end of the financial year.

The GST Uncertainty might also Get Resolved Soon

The other major issue of tax compliance uncertainty for the Indian online gaming industry: how will GST be applied, might soon be resolved. According to informed sources, the next meeting of the GST council is likely to be held in June, and the GoM report on gaming will likely be taken up for discussion.

“We expect the next meeting of the GST Council to be held in June when the report of the Group of Ministers on GST on online gaming, horse racing, and casinos will also be taken up for discussion and hopefully for approval,” the sources have said.

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By a unanimous vote on March 23, the Tamil Nadu Legislative Assembly put an end to yet another episode of the long-year battle led by consecutive state governments to forbid playing online games that involve real money.

The TN LA stood as one and returned the ball to Governor R. N. Ravi’s court by swiftly re-adopting Tamil Nadu’s second ban on online gambling and rummy. This will be the second time the Prohibition of Online Gambling and Regulation of Online Games Bill is presented to Raj Bhawan, and now governor Ravi will have to sign it as per the Union Constitution.

In this Episode

On March 8, the governor stirred up political chaos in the state when he returned the Bill the Assembly had initially passed in November 2022. After waiting four months, R. N. Ravi said that the state LA didn’t have the “legislative competence” to enact this law and refused to give it assent.

The move prompted the DMK-led state government of Chief Minister M. K. Stalin to accuse Ravi of acting as a “stumbling block to the state’s development,” seeing it as an escalation of the governor’s confrontational stance.

Political controversy and street protests marked the following two weeks with media and public attention focused on the rising number of suicides that could allegedly be linked to accumulating debt playing online games, particularly online rummy, which is widely regarded as a game of skill.

Previously on the TN Political Scene

The state’s first online gaming ban appeared as an ordinance in November 2020 and was made into a bill in February 2021 by the previous AIADMK-led state government, but survived only until August of the same year when the High Court of Madras quashed it for violating the Constitution.

The HC bench ruled on a challenge initiated by a group of gaming companies and industry bodies, including the AIGF, the EGF, and FIFS, and observed that games of skill are to be treated as legitimate free trade activities and therefore banning them was disproportionate to the aim of the law.

The following months were dotted with skirmishes between the now opposition AIADMK and the current ruling party DMK with the former blaming the latter for not acting on online gaming and the latter returning that the former wrote the law to ban online games badly and that’s why it got struck down.

In the meantime, CM Stalin’s cabinet had opted to work on two fronts and had appealed the Madras HC ruling before the Supreme Court while preparing the new bill, which had “Regulation” in its title besides “Prohibition.”

After the second gaming ban was adopted as an Ordinance, the Indian gaming industry submitted its challenge at the High Court but had to place it on hold after the government’s Ordinance lapsed without being replaced by the LA’s Bill as the governor had not signed it, and it had not entered into force.

Update: Raj Bhavan Puts Bill into Force

TN Governor R. N. Ravi gave his assent on April 7, and Tamil Nadu Prohibition of Online Gambling and Regulation of Online Games Act, 2022 was notified and came into force on Monday, April 10, 2023.

Unfazed by the notification of national regulations over online games in the face of the IT Amendment Rules, 2023, former Madras HC justice and current head of TN’s online gaming panel K. Chendru said “We don’t see any other way out except banning. Tamil Nadu will follow its own legislation.”

The E-Gaming Federation EGF said it was considering legal action against the act which was defined as an “extremely unfortunate and a disappointing development”, while lawyers commented that the IT Rules amendments and the TN act create a double compliance burden for gaming businesses that wish to operate in the state.

Last August Justice Chandru spearheaded a committee that used two weeks to produce a 71-page report concluding that online games involved no skill and cannot be regulated, and therefore should be banned.

The Argument on Legislative Competence

The Constitution of India delegates the power to legislate and ban gambling and betting to the States. At the same time, numerous Supreme and High Court rulings, including the disputed by M. K. Stalin’s cabinet Madras HC decision, have distinguished games that have a preponderance of skill from games of chance, i.e., from gambling and betting and have held that games of skill are legitimate business activities protected by the Constitution.

The Madras High Court verdict observes that nothing stops the State from implementing a new law regulating online games. Even the Union Information and Broadcasting Minister Anurag Singh Thakur had to clarify in the Lok Sabha that “Betting and Gambling come under Entry 34 of List-II in Seventh Schedule of Constitution of India, in respect of which States have power to legislate.”

Yet, the Tamil Nadu governor claims that the Prohibition of Online Gambling and Regulation of Online Games Bill goes beyond the State’s legal competence, and the All India Gaming Federation (AIGF) and other industry bodies have also challenged this particular legal text.

Thus, the matter comes down to the question of what is a game of skill and what is a game of chance. The Bill places rummy and poker in the chance category, which is its weak spot.

While the next developments in Tamil Nadu’s battle against online gaming are still to unfold, the Union Government is advancing in its efforts to regulate the sector with central law in a way to solve the skill vs. chance ambiguity and lower the associated risks and societal costs of gaming through introducing responsible gaming policies on the national level.

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