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Online Gaming: Legal Enforcement of the Virtual World


Online games have been on a rise since the advancements made in technology over the past few years. Users can enter completely virtual worlds by clicking a few keys on their mobile phones or personal computers. The technology of today is so advanced that in fact there is little difference between the virtual world and the real world. The question of implementing law in the virtual world is of huge importance today. Online games may provide a huge amount of entertainment but few of these games venture into gambling as well and therefore it is important to segregate between game of skill and game of chance to ascertain their legality. Since no specific regulation is enacted  to control online gaming in India , currently the state governments regulate the same with the existing gambling and gaming regulations.  Some States like Tamil Nadu has gone ahead to expressly ban games involving real money whereas few other states like Sikkim have allowed the same.  The meteoric rise in online gaming has also brought a plethora of concerns such as mental health , financial fraud , data security and other aspects as well.  Another important aspect to be dealt with is the taxation of the online gaming industry. Therefore it can be stated that the need of the hour in this sector is proper regulations and implementations.

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Millions of users participate in online games involving real money such as poker , rummy and even fantasy sports leagues through various websites and applications. The growth potential of the industry is huge . The gaming industry has risen through the start up ecosystem. In the year 2023 the Indian online gaming industry was valued around 220 Billion USD and expected to be worth over 388 Billion USD  by 2026.  The landscape in India has changed over the years with increasing availability of cheap handsets and network connections foraying  into online gaming is just a touch away. In 2022 The Online Gaming (Regulation) Bill was introduce in the Parliament to tackle the lack of a centralised law to regulate the online gaming industry. The bill aimed to create an online gaming commission and introduce a licensing mechanism for companies involved in the industry. A Comprehensive regulation and a development of a national market will boost the already fast paced growth of the gaming industry in India. The commission will oversee online gaming and can take actions to prevent gambling or any other illegal activities through online gaming.  This bill poses a conflict as it is envisaged as a central law even though gaming and gambling are state subjects and many states have already made legislations regarding the same. The bill also fails to define the difference between game of skill and game of chance and this will lead to technical loopholes upon implementation. Games of skill such as poker and rummy have a very small line between chance and skill and therefore a clear and precise definition of what is a game of skill is necessary.


Even though a central legislation does not exist there are many state legislations and other regulatory bodies that govern the industry. Most of the real money game operators are regulated by the rules and regulations of the All India Gaming Federation (AIGF) and the Federation of Indian Fantasy Sports (FIFS). The major issue with these bodies is that they are self regulatory and therefore the implementation of these regulations face issues throughout the country. Public Gambling Act , 1867 is a colonial law enacted to deal with casinos and gambling , This British era law has very little relevance is todays scenario as most of the real money gaming takes place online and the law is not equipped to deal with the same.  The lack of legislations has led to the increase in  the illegal offshore gambling market causing substantial losses to the exchequer. A few amendments were made to the Information and Technology rules 2021 following the Supreme Court’s decision that games of skill are not gambling. Although the amendments were necessary it failed to clarify the meaning of skill based games.


Due to the meteoric rise of the gaming industry coupled with availability of technology , the Indian online gaming industry has seen investments from multibillion-dollar companies as well as home grown startups. The players play with real time money and also earn in real money and therefore it can be a taxable income. The government has enacted a provision via the Finance Act , 2023 to tax the winnings from an online game. Under section 115BBJ winnings from any online game will be taxed at a rate of 30% excluding surcharges and cess and under section 194B the net winnings shall be deducted as income tax. Prior to these amendments the tax deduction at 30% was only applicable to winnings of Rs 10,000 and above. The new provisions have increased theta burden on users as well as the companies but it is important to recognise the fast growing sector as a separate entity and clarifying that only net winnings can be taxed . The responsibility is on the now on the online aggregators to deduct tax from the source i.e the winning amount at the rate of 30%. The sector is seeing a huge growth and investment therefore it is necessary to tax it separately under the ambit of income tax.  The government has also increased the tax slab under  GST by levying GST at 28% on the total amount and enacting specific provisions for online gaming . Several Countries follow the Gross Gaming Revenue (GGR) taxation model and also provide subsidies taxed rates ranging from 3%-15%. The tax amendments may have an adverse effect on the gaming industry and employment generations. The gaming companies are faced with the dilemma  to sustain the entire GST liability or pass on the burden to the players as well which in turn may lead to the loss of users. This scenario creates a huge problem for the gaming aggregators as the revised taxation reduces the profitability margin and reduces the foreign investment on this fast paced industry.  The industry believes that the classification of games of skill akin to gambling and horse racing under the tax slab would hurt the short term and long term growth of the sector.  The government must reconsider the current tax slab and must strike a balance between tax deduction and sustainability of the industry.


The online gaming industry is one of the fastest growing industry in the country and the growth potential is huge. The industry also leads in job creation as well as foreign direct investments(FDI). As it has been enunciated the sector is lacking of a clear and precise legislation that can boost its growth whereas at the same time ensures the smooth running of the platforms and protecting the rights of the users. The new regulatory bill has been criticised for being vague and creating potential conflicts between the state and central legislations. The recent increase in tax slab has also been met with criticism from within the industry as it marginalises the growth potential. The only way ahead is for the stakeholders and the government to come together and regulate the industry while maintaining a balance. The  gaming industry requires a robust regulatory framework for its smooth functioning. The industry is projected to be valued over 380 Billion USD by 2026 and therefore the government must realise the huge potential in the gaming industry and enact laws accordingly.

Author: Adithya Satheesh, in case of any queries please contact/write back to us via email to [email protected] or at IIPRD.


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