Online Gaming in India Introduction

• India’s online gaming industry has seen unprecedented growth over the past few years, making it a key driver of the digital economy.
• With over 650 million smartphone users and a young, tech-savvy population, India is well-positioned to emerge as a global leader in skill-based gaming.
• According to a PwC report, the sector, valued at ₹33,000 crore in 2023, is projected to expand at a CAGR of 14.5%, reaching ₹66,000 crore by 2028.
• The industry is expected to generate 2-3 lakh new jobs, adding to the 2 lakh jobs already created in game development, e-sports, and streaming.
• However, despite its immense potential, the sector is under strain due to high taxation, legal ambiguity, and regulatory hurdles.

The Burden of High Taxation on Online Gaming

• While states like Karnataka and Telangana have launched initiatives to promote the Animation, Visual Effects, Gaming, and Comics (AVGC) sector, stringent taxation policies at both the central and state levels have created a challenging environment for gaming businesses.
• The government has imposed a 28% GST on online gaming, categorizing it alongside gambling, alcohol, and tobacco—industries known for their harmful societal impact.
• This misclassification fails to differentiate between skill-based gaming and gambling, discouraging investment in a sector that thrives on innovation and talent.
• Additionally, a retrospective tax demand of ₹1.12 lakh crore has been imposed on gaming companies, pushing many startups to the brink of closure.
• For example, in January 2024, the GST Council formed a panel to assess taxation issues, but gaming firms continue to struggle with compliance burdens and operational costs.

Legal Confusion: Gaming vs. Gambling

• Several state governments have attempted to ban online gaming, equating it with gambling, leading to prolonged legal battles.
• Courts have ruled in favor of skill-based gaming, asserting that games requiring strategy and decision-making do not constitute gambling.
• The Supreme Court of India, in March 2025, issued a stay order on the retrospective GST demand, offering temporary relief to the industry.
• However, the lack of a clear legal framework continues to deter investors and game developers from expanding their operations in India.

Key Challenges Facing the Online Gaming Industry

• Excessive Taxation: The 28% GST makes Indian gaming companies less competitive compared to global markets, pushing businesses and players toward offshore platforms.
• Legal Uncertainty: Frequent bans and court cases create an unpredictable business environment, deterring foreign and domestic investments.
• Lack of Differentiation Between Gaming and Gambling: Policymakers fail to recognize that games of skill are distinct from gambling, leading to blanket restrictions on online platforms.
• Survival Threat to Startups: Many small and mid-sized gaming firms face closure due to high taxation and complex compliance requirements.
• Rise of Illegal Offshore Betting Platforms: Strict regulations on legitimate gaming companies have pushed users toward offshore gambling sites, which operate beyond Indian regulatory control.

The Way Forward

• Instead of imposing excessive taxes and legal roadblocks, the government should collaborate with industry stakeholders to develop a clear, growth-friendly regulatory framework.
• A well-structured policy can foster innovation while also addressing concerns like gaming addiction and financial transparency.
• Rationalizing GST Rates: The 28% GST should be reconsidered, following models like the UK and Singapore, where gaming taxation is more balanced to encourage industry growth.
• Legal Clarity for Skill-Based Gaming: The government should clearly distinguish between skill-based gaming and gambling, preventing unnecessary bans and legal conflicts.
• Scrapping Retrospective Tax Demands: The ₹1.12 lakh crore retrospective GST demand should be dropped, as it threatens the survival of Indian gaming firms.
• Encouraging Responsible Gaming: Developers should integrate in-app safeguards to prevent excessive gaming and ensure fair play.
• Curbing Illegal Gambling: Instead of penalizing legitimate businesses, India must strengthen monitoring mechanisms to prevent illegal offshore gambling platforms from targeting Indian players.