"The Indian online gaming regulatory landscape is complex, with a mix of outdated central laws and fragmented state regulations"

India's booming online gaming sector stands at a regulatory crossroads, caught between rapid technological growth and a patchwork of legal frameworks. With central laws struggling to keep pace and individual states charting their own courses, the industry faces both opportunity and uncertainty.

To shed light on this evolving terrain, Yogonet spoke with Vidushpat Singhania, Managing Partner at Krida Legal and one of India’s leading voices in sports and gaming law. From legal grey areas to recent policy shifts, Singhania offers a clear-eyed view of where the sector stands—and where it may be headed.

Can you provide us with a brief overview of the current online gaming regulatory situation in India for those readers who might not be familiar with it? Which states currently have regulations in place for this industry?

The Constitution of India, under Article 246, divides the power of the Union Government and the State Governments to legislate on various issues/entries. The entry pertaining to “betting and gambling” is Entry 34 in List II of Schedule VII, i.e., the State List. Therefore, the primary responsibility of regulating physical premises-based betting and gambling is with the respective State governments of India, through the respective state legislations enacted by them.

In Indian jurisprudence, ‘Gaming’, ‘Gambling’, and ‘Betting’ have been used interchangeably. Moreover, the Public Gambling Act, 1867 (“PGA”), and adaptations of the same by States post the promulgation of the Constitution of India, have governed the sector for over 150 years. The exceptions granted to ‘Games of Skill’ by relevant legislations have been relied on to fuel the multi-million-dollar online gaming industry — Rummy, Poker, Fantasy Sports, et al.

The Indian online gaming regulatory landscape is complex and characterized by a mix of outdated central laws and fragmented state-level regulations. The primary central legislation governing gambling is the PGA, which predates the internet and is ill-equipped for the modern online gaming industry. The PGA prohibits operating public gambling houses but exempts "games of mere skill." However, the PGA doesn't explicitly define skill, thereby leaving room for interpretation and legal challenges.

Certain State gambling laws, such as those of Nagaland and Sikkim, provide for online gaming licensing systems. These laws stipulate the restriction that such forms of gaming can only be provided over the intranet and to the exclusion of inhabitants of their state. In other states, such as Assam and Odisha (Orissa), there is no exception for games of skill. Further, in the states of Andra Pradesh, Arunachal Pradesh, and Telangana, there is no exception for games of skill offered for stakes. In the State of Tamil Nadu, online games of skill for stakes can be offered only after obtaining registration with the Tamil Nadu Online Gaming Authority.

In all other States in India, offering online games of skill with stakes would fall within the grey area, i.e., it can be offered, subject to the concerned High Court or authority of a State, classifying it expressly as a ‘game of chance’.

We have seen some of these concepts being used in opposition: gaming vs. gambling, skill vs. chance. What is the significance of these terms in the ongoing discussions, and what role can they play in delimiting a legal framework?

In India’s ongoing debates around online gaming and regulations thereof, the concepts of “gaming vs gambling” and “skill vs chance” play a pivotal role in shaping the legal and policy landscape. These distinctions determine whether an activity falls under state jurisdiction, as gambling does, or if the same can be regulated as a legitimate business activity by the Center. Games of skill, like rummy or fantasy sports, are often protected by courts as lawful activities, while games of chance are heavily restricted, being considered akin to gambling.

However, a lack of clear differentiation between games of skill and games of chance has led to confusion among stakeholders, especially regarding regulatory treatment and taxation. The imposition of 28% GST on online gaming has intensified controversy over the treatment of skill-based games such as gambling, raising legal, economic, and constitutional concerns.

By subjecting all online gaming, regardless of the role of skill, to the same high tax slab as gambling, it is argued that the government is undermining judicial precedents, stifling a booming industry, and deterring investment in a sector that supports innovation and employment.

This distinction is crucial for delimiting a legal framework as it enables lawmakers to determine which activities can be permitted and regulated through licensing, consumer protection, and responsible gaming norms, and which should face tighter controls or bans. In the absence of such clarity, blanket taxation and vague classifications have prompted a more nuanced regulatory framework that distinguishes between skill and chance, ensuring fair treatment and sustainable growth for the online gaming ecosystem.

Where do you see India's crackdown on illegal online gaming headed? Do you expect the introduction of reforms to bring online platforms into a regulated framework, or for authorities to ramp up restrictions against them?

The Directorate General of Goods and Services Tax Intelligence (“DGGI”) in collaboration with the Ministry of Electronics and Information Technology (“MeitY”) under the IT Act, 2000. has intensified its crackdown on illegal offshore online gaming platforms, blocking 357 non-compliant websites under Section 69 of the IT Act, 2000. This enforcement effort is part of a broader attempt to regulate online money gaming, which the government now classifies as an “actionable claim” and treats as a supply of goods under the Goods and Services Tax (“GST”) framework.

Under India’s GST framework, the government classifies ‘Online Money Gaming’ as an actionable claim, treating it as a supply of goods. The Government has shown intent to regulate the sector.

The amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, notified in April 2023, aimed to establish a framework for “permissible online games”. This involved creating Self-Regulatory Bodies (“SRBs”) to certify games that don't involve betting or wagering on outcomes. This move suggested a pathway towards legitimacy for platforms meeting specific criteria, focusing on user protection, KYC norms, and distinguishing games of skill from games of chance (though the latter remains contentious). The goal appeared to be bringing legitimate operators under a regulated umbrella while curbing illegal betting and gambling platforms.

While the government has attempted to curb these activities by blocking websites and issuing advisories, illegal operators continue to thrive, constantly adapting their strategies to evade restrictions. A more comprehensive approach ought to be considered, holding all key enablers, including tech platforms, accountable while enforcing strict compliance measures.

The most consequential development has been the GST Council's decision to impose a 28% Goods and Services Tax on the full face value of bets placed on online gaming, casinos, and horse racing, effective October 2023. This high tax rate has been widely criticized by the industry as potentially crippling, making many Real Money Gaming business models unviable and potentially driving users towards grey or illegal offshore platforms. This tax, while technically a form of regulation, functions as a severe restriction due to its economic impact.

What should a proper regulatory framework look like? What lessons can India learn from other global markets, such as the U.S. and the nascent Brazilian industry, that regulate sports betting?

A proper regulatory framework for online gaming, including sports betting, should be clear, comprehensive, and adaptable, striking a balance between enabling legitimate industry growth and robustly protecting consumers. Drawing from global practices, including American and Brazilian frameworks, the framework should include the following key elements:

• Clear Licensing Regime: Define eligibility criteria, application processes, fees, and operational standards for betting operators. This ensures only credible entities participate.
• Robust Consumer Protection: Mandate strict Know Your Customer (KYC) and age verification (minimum 18 or 21 years) to prevent underage gambling and money laundering. Implement responsible gaming tools like deposit limits, self-exclusion options, and clear warnings about addiction risks. Establish an effective dispute resolution mechanism.
• Integrity Measures: Require operators to monitor betting patterns for suspicious activity and collaborate with governing bodies and law enforcement to combat unauthorized gaming activities.
• Effective AML and CTF obligations: Operators must be mandated to have effective policies pertaining to Anti-Money Laundering as well as Counter Terror Financing obligations.
• Fair Taxation: Implement a reasonable tax structure (e.g., on Gross Gaming Revenue - GGR) that generates state revenue without driving operators or consumers to the black market.
• Advertising Restrictions: Regulate the content, volume, and placement of betting advertisements, prohibiting misleading claims and targeting vulnerable individuals or minors.
• United States (US): The state-by-state legalization post the repeal of the Professional and Amateur Sports Protection Act of 1992 (“PASPA”) created a complex patchwork. While allowing tailored approaches, it highlights the need for consistency, especially regarding consumer protection and advertising, potentially through federal guidelines or strong interstate coordination. The rapid expansion also underscores the social costs, like increased debt and bankruptcy in some cases, emphasizing the need for robust, responsible gambling measures from the outset. The US experience also shows that high tax rates can hinder the legal market.
• Brazil: Brazil's lengthy journey from legalization (2018) to establishing detailed regulations (ongoing, expected to be fully launched in 2025) shows the risks of delays. This period allowed a large grey market to flourish and created uncertainty. The eventual regulations focus on licensing, integrity, AML/KYC, responsible gaming, and channeling demand away from illegal operators. India can learn the importance of swift, comprehensive rule-making post-legalization to establish credibility, protect consumers effectively, and minimize the influence of the black market. The Brazilian focus on operator education regarding responsible gambling is also noteworthy.

On the other hand, what rules should India avoid in its efforts to regulate online gambling? Can you tell us more about the potential negative effects of outright bans or overtaxing gaming?

In its efforts to regulate online gambling, our Indian regulators should avoid blanket bans, vague definitions, and punitive taxation, as these measures can lead to significant legal, economic, and social drawbacks. Instead, a balanced, nuanced, and clearly defined regulatory framework shall be strived for that encourages legal, skill-based gaming while effectively deterring harmful gambling practices.

Negative Effects of Banning Online Gaming:

• Growth of Illegal Markets: Demand for gaming doesn't disappear with a ban. Instead, players migrate to illegal offshore betting and gaming platforms. These platforms operate outside Indian law, offering no consumer protection.
  Loss of Consumer Protection: Players on illegal sites face risks like fraud, data breaches, unfair practices, and lack of recourse for disputes. There are no mechanisms for responsible gaming (like self-exclusion or deposit limits) on these platforms.
• Revenue Loss for Government: Potential tax revenue (GST, corporate taxes) that could be generated from a regulated industry is lost entirely. The illegal market contributes nothing to the exchequer.
• Increased Money Laundering & Crime: Illegal platforms are often used for money laundering and can be linked to other criminal activities, posing security risks. Enforcement against these offshore entities becomes extremely difficult.
  Job Losses and Economic Impact: A ban eliminates jobs in game development, marketing, operations, and ancillary sectors within India. It also stifles innovation and investment in a growing tech sector.
• Difficulty in Enforcement: Effectively blocking access to countless offshore websites and apps is technically challenging and resource-intensive.
• Impact on Mental Well-being (Addiction Shift): While intended to curb addiction, a sudden ban can negatively impact habitual gamers, potentially leading to withdrawal symptoms like irritation or depression, without providing support structures. The activity may just shift to harder-to-monitor platforms.

Negative Effects of Overtaxing Online Gaming (e.g., 28% GST on full face value):

• Reduced Industry Viability & Job Losses: High taxation, especially on the full deposit value rather than Gross Gaming Revenue (GGR), severely impacts the profitability and sustainability of legitimate operators. This has led to reduced margins, layoffs, hiring freezes, and even company shutdowns in India.
• Shift to Illegal/Grey Markets: Overtaxing makes legal platforms less attractive to consumers due to higher costs or reduced winnings. This drives players towards illegal offshore platforms that don't pay taxes in India and offer better perceived value, undermining the goal of revenue generation.
• Lower Than Expected Tax Revenue: While the tax rate is high, the tax base (the legal industry's turnover) shrinks as businesses close, or players move offshore. This can lead to actual tax collections being lower than anticipated from a more moderate tax regime. Although initial reports showed a significant jump in GST collection after the 28% hike, industry analyses suggest long-term stagnation or decline in revenue for many companies and potential harm to overall growth.
  Deters Investment and Innovation: An unfavorable and high tax environment discourages both domestic and foreign investment in the sector, hindering growth and innovation.
• Impact on Skill-Based Gaming: Applying a high "sin tax" rate uniformly to both games of chance (gambling) and games of skill can stifle the legitimate skill-based gaming industry, which many argue should be treated differently.

Both banning and overtaxing tend to push activity underground, resulting in loss of government control, reduced tax revenue, lack of consumer protection, and growth of illegal operations. Regulation combined with a reasonable tax structure (often suggested by industry to be on GGR) is generally considered more effective for balancing economic growth, consumer safety, and revenue generation.

We have seen proposals for self-regulatory bodies to take a leading role in the growing online gaming industry. What role could Self-Regulatory Organizations (“SROs”) play in this sector? What advantages do you see in this proposal over traditional governmental regulation, and on the contrary, what are this model's weaknesses?

Self-Regulatory Organizations (“SROs”) are typically non-governmental entities formed by industry participants to establish and enforce standards and rules for their sector. In the rapidly growing online gaming industry, SROs could play a significant role in complementing government regulation, potentially providing a more agile approach to a dynamic sector.

Potential Roles of SROs in Online Gaming:

• Developing Codes of Conduct: SROs can create industry-specific rules covering ethical practices, fair play, responsible advertising (in line with bodies like the Advertising Standards Council of India), and differentiating between games of skill and games of chance.
• Monitoring and Compliance: They can monitor member platforms for adherence to these codes, conduct audits, and track instances of non-compliance.
• Player Protection: SROs can implement measures for consumer safety, including age verification, KYC (Know Your Customer) procedures, setting limits for spending and playtime, addressing concerns about addiction and financial harm, and providing grievance redressal mechanisms.
• Certification and Registration: They could be involved in certifying or registering permissible online games, potentially distinguishing games based on skill versus chance, though the specific power granted (e.g., 'may register' vs 'shall register') can be contentious.
• Promoting Trust and Awareness: By setting standards and ensuring compliance, SROs aim to build public trust, increase industry awareness, and reduce risks to consumers.

Advantages of Governmental Regulation:

• Industry Expertise: SROs possess a deep knowledge of the industry's operations, technologies, and market practices, which can lead to more practical and informed rulemaking.
• Flexibility and Speed: They can often respond more quickly and flexibly to technological advancements and changing market conditions than government bodies, adapting rules without lengthy legislative processes.
• Reduced Governmental Burden: SROs can alleviate the regulatory load on government agencies, providing sector-specific oversight.
• Cost-Effectiveness: Self-regulation can sometimes be more cost-effective for the government.
• Fostering Innovation: A self-regulatory approach, potentially seen as "soft-touch regulation," might encourage innovation by allowing businesses more flexibility within established ethical boundaries.

Weaknesses and Disadvantages of SROs:

• Conflicts of Interest: Since SROs are composed of industry players, there's a significant risk of bias, where regulations might favor industry interests over consumer protection or fair competition. Proposals dominated by industry players have faced rejection due to concerns about neutrality.
• Anti-Competitive Behaviour: SROs could potentially engage in cartel-like activities, restrict market access for competitors by setting biased standards, or allocate markets geographically, stifling competition.
• Lack of Enforcement Power: SROs generally lack the full legal authority of government agencies, which may limit their ability to impose strict penalties or enforce rules effectively, especially on non-members.
• Regulatory Arbitrage/Fragmentation: If multiple SROs exist with differing standards, companies might choose the one with the least stringent rules, leading to inconsistencies and a fragmented market.
• Ambiguity and Lack of Clarity: Issues like unclear definitions (e.g., what constitutes an "online game" or "harm") or uncertainty regarding the interplay with existing state laws can create problems.
• Free-Rider Problem: Firms that do not join the SRO can benefit from the improved industry reputation without contributing to the costs or adhering to the rules.

While SROs offer potential benefits like expertise and flexibility, their effectiveness hinges on addressing inherent weaknesses like conflicts of interest and ensuring adequate oversight, possibly through a co-regulatory model involving government collaboration. The challenge lies in balancing industry growth and innovation with robust consumer protection and fair market practices.