Dream 11 in the land of Lagaan: Navigating the legal landscape of the Online Gaming Industry in India

The author is Rishika Jitendra Gupta, a Fifth Year Student from O.P. Jindal Global University, Jindal Global Law School.

Abstract:

India's online gaming industry, a dynamic intersection of technology, entertainment, and law, is undergoing rapid growth, propelled by widespread smartphone use and affordable internet access. This paper examines the sector's challenges, particularly the regulatory shifts following the introduction of a uniform 28% Goods and Services Tax (GST) on online gaming activities. Historically, India's legal framework distinguished between games of skill and games of chance, offering skill-based platforms favourable treatment. However, the new tax policy blurs this distinction, subjecting all games to identical tax rates and raising constitutional concerns under Article 19(1)(g) regarding the right to conduct lawful trade.

The paper explores the economic and constitutional implications of this regulatory landscape, analysing judicial precedents, industry data, and international models. Key findings suggest the high tax burden risks stifling innovation, driving users toward unregulated markets, and undermining revenue goals. Recommendations include adopting a nuanced taxation framework, such as the net deposit model, ensuring proportional regulation, and fostering evidence-based policymaking. Through these measures, India can balance industry growth, revenue generation, and consumer protection, positioning itself as a leader in the global digital gaming economy.

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1. Introduction

At the intersection of technology, entertainment, and law lies India's developing online gaming industry, a sector that exemplifies both- the opportunities and challenges of digital transformation in the world's largest democracy. As smartphones and affordable internet access reshape leisure activities across the subcontinent, online gaming platforms have emerged as significant drivers of the digital economy, with companies like Dream 11 leading this revolution by ingeniously combining India's passion for cricket with modern gaming technology.

The industry's rapid ascent, however, has brought it to a critical regulatory crossroad. The Indian government's recent implementation of a uniform 28% Goods and Services Tax (GST) on all online gaming activities marks a watershed moment that challenges the traditional legal distinction between games of skill and games of chance. This regulatory shift has ignited a complex debate about the balance between state revenue interests and industry sustainability, while raising fundamental questions about the constitutional protection of legitimate business activities under Article 19(1)(g) of the Indian Constitution.

The timing and significance of this regulatory challenge cannot be overstated. As India positions itself as a global digital powerhouse, the resolution of these issues will not only determine the fate of a promising industry but also set precedents for how the country approaches the regulation of emerging digital sectors. The stakes extend beyond immediate economic impacts, touching upon issues of technological innovation, job creation, and India's competitiveness in the global digital economy.

This paper examines the evolving regulatory landscape of India's online gaming industry through multiple lenses: legal, constitutional, economic, and comparative. By analysing the interplay between traditional gaming jurisprudence and modern digital realities, we aim to contribute to the ongoing discourse on creating a balanced regulatory framework that can foster innovation while ensuring responsible gaming practices. The research draws upon recent legal developments, economic data, and international regulatory models to propose a path forward that aligns with both public policy objectives and industry needs.

2. Background

The Rise of Online Gaming in India

The rapid proliferation of smartphones, combined with increasingly affordable internet access, has propelled India into one of the world's fastest-growing markets for online gaming. This digital revolution has democratized access to gaming platforms, enabling millions of users across urban and rural areas to engage with interactive entertainment.^[1] The Indian online gaming industry, currently valued at a staggering USD 3.8 billion in FY24, is forecasted to grow at an impressive compound annual growth rate (CAGR) of 20%, potentially reaching a market size of USD 9.2 billion by FY29. ^[2]  Among the various segments of online gaming, the fantasy sports category has experienced a meteoric rise, capturing the imagination of millions of sports enthusiasts. Platforms like Dream 11 have emerged as industry pioneers, leveraging a growing passion for sports and advancements in technology to dominate the market.^[3] These platforms have not only transformed the way fans engage with their favourite games but have also played a significant role in shaping the overall trajectory of the online gaming industry in India.

Legal Framework: Games of Skill vs. Games of Chance

The legal framework governing online gaming in India has evolved over more than six decades, built upon a jurisprudential foundation that carefully distinguishes between games of skill and games of chance. This distinction originated from the seminal judgment of the Supreme Court in State of Bombay v. R.M.D. Chamarbaugwala (1957), where the Court established a fundamental principle: competitions in which success is predominantly determined by a significant degree of skill, rather than mere luck or chance, do not fall under the category of "gambling”.^[4] This landmark ruling set a critical precedent, shaping the regulatory approach toward gaming activities in India.

In subsequent years, the judiciary continued to interpret and apply this principle to emerging forms of gaming. A notable example is the case of Varun Gumber v. Union Territory of Chandigarh & Ors. (2017), where the Punjab and Haryana High Court extended this reasoning to online fantasy sports.^[5] The Court categorized fantasy sports as games of skill, emphasizing that their outcomes are influenced by players' knowledge, judgment, and analytical abilities rather than pure luck. This classification has provided online fantasy sports platforms with a more favourable regulatory environment compared to games of chance or gambling activities, which are often subjected to stricter controls and higher tax rates.

As a result, platforms deemed to involve skill-based gaming have historically benefitted from regulatory exemptions and lower tax obligations, reflecting the legal recognition of their unique nature within the broader gaming industry. This distinction remains a cornerstone of the Indian legal framework, influencing not only the operation of gaming platforms but also the ongoing policy discourse surrounding the online gaming sector.

Recent Taxation Developments

The regulatory landscape for online gaming in India experienced a seismic shift with the GST Council's decision in July 2023 to impose a uniform Goods and Services Tax (GST) rate of 28% on the full face value of bets placed, irrespective of whether the games are classified as skill-based or chance-based.^[6] This decision marked a departure from earlier jurisprudence and tax practices, which treated money earned from games of skill differently from those associated with games of chance.^[7] Historically, proceeds from games of skill were excluded from being considered as “goods” or “services” because they fell under the category of actionable claims, which are generally exempt from GST.^[8] However, this exemption did not apply to actionable claims related to betting and gambling. With the new taxation regime, skill-based games are now treated under the same exception, effectively subjecting them to the same tax treatment as betting and gambling.

This change represents a fundamental shift in how the legal and tax framework perceives skill-based games. Previously, such games enjoyed favourable treatment under the actionable claims framework, as they were recognized for their reliance on player skill rather than pure chance.^[9] The inclusion of skill-based games under the exception for betting and gambling has blurred this distinction, thereby subjecting them to the 28% GST. Coupled with the already-existing 30% income tax on winnings, this has created a challenging economic environment for the online gaming industry.^[10]

The uniform GST rate and its application to skill-based games have sparked significant concerns across the sector. Not only does this policy undermine the distinction between games of skill and games of chance, central to Indian gaming jurisprudence; but it also raises questions about the future viability of the industry

 3. Constitutional Implications: Article 19(1)(g)

 The current taxation framework for online gaming in India raises significant constitutional questions, particularly in light of Article 19(1)(g) of the Indian Constitution. This provision guarantees all citizens the fundamental right "to practice any profession, or to carry on any occupation, trade or business”.^[11] However, this right is subject to reasonable restrictions that the State may impose in the interest of the general public.^[12]

The Right to Carry on Trade and Its Limitations

Article 19(1)(g) is designed to protect the economic liberty of individuals and entities to engage in lawful commercial activities.^[13] The Supreme Court, in numerous judgments, has emphasized the importance of this right in fostering economic growth and individual freedom.^[14] However, it has also recognized that this right is not absolute and can be subject to reasonable restrictions under Article 19(6).^[15]

The courts have classified gambling activities as "res extra commercium" to justify imposing restrictions.^[16] This classification places games of chance outside the realm of ordinary commerce, meaning they are not protected under Article 19(1)(g) of the Constitution, as they conflict with public policy. The doctrine was first invoked to impose limitations on the sale of alcohol in the Khoday Distilleries case, setting a precedent for restricting activities deemed harmful to public welfare.^[17]

In the context of online gaming, particularly for platforms offering games of skill, the uniform application of a high GST rate, regardless of the nature of the game, potentially infringes upon this constitutional right. The key question is whether such taxation can be considered a "reasonable restriction" in the interest of the general public.

Reasonableness of Restrictions: Taxation Perspective

To determine whether a restriction is reasonable, courts typically apply a test of proportionality. For such taxation to be justified, it must serve a legitimate aim, have a rational connection to this aim, lack less restrictive alternatives, and strike a balance between achieving the aim and protecting constitutional rights.^[18] While generating revenue or discouraging harmful gambling practices could be legitimate aims, a uniform tax rate across all online games may lack a rational connection to these objectives, as it fails to distinguish between games of chance and games of skill, which have different social impacts.^[19] Less restrictive alternatives, such as differentiated tax rates or targeted regulations, could achieve similar objectives without unfairly impacting skill-based games, preserving their status as legitimate commercial activities. The lack of such tailoring suggests a potential overreach, as a high blanket tax could disproportionately burden skill-based gaming businesses, thus failing to balance regulatory aims with the constitutional right to conduct a lawful trade or profession under Article 19(1)(g). The uniform taxation approach thus risks being overly broad and insufficiently proportional to the diverse nature of online gaming.

Case Law Analysis

Several landmark cases shed light on how courts might interpret the current taxation regime on online gaming, particularly for skill-based platforms. In All India Gaming Federation vs. The State of Tamil Nadu (2023), the Madras High Court ruled that the right to conduct online fantasy sports is protected under Article 19(1)(g) of the Constitution, recognizing it as a legitimate occupation and highlighting the constitutional safeguards for skill-based gaming platforms.^[20] Similarly, in Gurdeep Singh Sachar v. Union of India (2019), the Bombay High Court upheld that Dream11's fantasy sports format qualifies as a "game of skill," distinguishing it from gambling.^[21] This classification underscores the importance of recognizing the unique nature of skill-based platforms, suggesting that they should be taxed and regulated differently from games of chance. Additionally, in The State of Andhra Pradesh v. K. Satyanarayana and Ors (1968), the Supreme Court held that games of skill do not constitute gambling, even when played for stakes, a distinction that is pivotal in assessing the fairness of applying gambling-level taxation to skill-based games.^[22] Together, these cases support a nuanced tax and regulatory framework that respects the unique characteristics of skill-based games, aligning with constitutional protections and judicial precedent.

4. Economic Implications of the Current Taxation Framework

The current taxation framework on online gaming, with a high and uniform Goods and Services Tax (GST) rate applied indiscriminately across all gaming platforms, has significant economic implications. These impacts extend not only to online gaming companies but also to the broader digital economy and job market.

Consumers Shift to Offline Platforms 

One of the direct consequences of high taxation on online gaming platforms is that it may drive consumers away from regulated digital platforms to unregulated offline or even illegal gaming options.^[23] High taxes inflate the cost of online participation, making it less attractive for consumers who may seek cheaper or unmonitored alternatives. This shift can lead to a loss of control over gaming activities, raising concerns about potential increases in unregulated gambling and associated risks, such as underage participation and a lack of consumer protection.^[24]

Reduction in GST Revenue Collection 

Ironically, the high tax rate intended to generate substantial revenue may have the opposite effect. As consumers and gaming businesses either exit the online space or operate in reduced capacities to avoid excessive costs, the tax base shrinks, leading to decreased GST collections.^[25] A more moderate tax rate, designed to encourage compliance, could potentially sustain a broader tax base and lead to more consistent revenue. In the long run, an inflexible, high tax rate may reduce government income from the gaming industry and potentially stymie the sector’s growth, preventing it from reaching its full revenue-generating potential.^[26]

Job Losses 

The economic pressure exerted by the high GST rate could also lead to significant job losses within the online gaming industry. Gaming companies, especially smaller and medium-sized enterprises, may struggle to remain profitable under the heavy tax burden. This financial strain could result in layoffs, hiring freezes, and even business closures, thereby reducing employment opportunities in an otherwise expanding digital industry.^[27] As online gaming platforms contribute to various sectors—technology, marketing, customer service, and content creation—any contraction in this industry would have a ripple effect, impacting jobs across multiple fields connected to gaming.^[28]

The current high-tax approach may thus lead to unintended economic consequences: consumers turning to unregulated offline platforms, reduced government revenue from GST, and potential job losses, all of which suggest that a more balanced taxation framework could better support the growth and regulation of the online gaming sector.

5. Potential Solutions and Policy Recommendations

Policy Recommendations 

The challenges presented by India’s current taxation regime for online gaming highlight an urgent need for regulatory reform that balances economic objectives with constitutional and sectoral needs. Through principles drawn from economics, legal precedents, and comparative jurisdictional analysis, a series of targeted policy recommendations can offer a roadmap toward a more balanced, effective, and sustainable regulatory framework for online gaming in India.

Adoption of the Net Deposit Model 

A primary recommendation is the implementation of a “net deposit model” to determine tax liabilities within the online gaming sector. In this model, tax calculations are based on the difference between the total amounts users withdraw and their cumulative deposits, rather than taxing the entire face value of each bet or transaction.^[29] This approach has several advantages. It allows taxation to focus on the net economic gain rather than gross transactions, aligning more closely with the principles of economic substance and the ability to pay. By focusing on net gains, it also reduces the effective tax burden on both users and platforms, alleviating excessive tax pressures and fostering a fairer distribution of tax obligations.^[30] Additionally, the net deposit model aligns Indian taxation practices more closely with global standards, supporting the competitiveness of Indian online gaming platforms within the international market and encouraging industry growth by fostering a stable, economically viable environment for both domestic and foreign investors.

Application of the Laffer Curve Principle 

The Laffer Curve, which illustrates the relationship between tax rates and revenue generation, is particularly relevant in the context of the online gaming industry. This economic principle suggests that excessively high tax rates may reduce total revenue by diminishing industry growth and driving tax avoidance.^[31] Applying the Laffer Curve concept within India’s online gaming sector would involve a strategic analysis of optimal tax levels that maximize revenue without stifling economic activity. Empirical studies should be conducted to identify the ideal tax rate that sustains both industry participation and government revenue, preventing the counterproductive effects of over-taxation. Additionally, differentiated tax rates for various gaming formats, such as games of skill versus games of chance, would ensure that the unique characteristics and regulatory needs of each category are appropriately considered.^[32] Regular adjustments based on market responses would further align tax policies with the evolving dynamics of the online gaming sector, enhancing revenue efficiency while maintaining industry sustainability.

Evidence-Based Policy Formulation

To ensure that regulatory decisions are both informed and effective, policies governing the online gaming sector must be grounded in rigorous empirical research that reflects the distinctive characteristics of India’s market. This evidence-based approach entails examining the actual effects of the current tax framework on sectoral growth, understanding consumer behaviour, and evaluating the broader economic impact of the industry.^[33] Specifically, research on how current tax rates affect user retention, market participation, and potential migration to unregulated platforms would offer insights into user preferences and compliance patterns. Additionally, studying the economic multiplier effects of the gaming industry, such as job creation, technological advancements, and ancillary services, would underscore its contributions to the broader economy.^[34] Data-driven analysis would also reveal the efficacy of different regulatory models, enabling policymakers to make adjustments that promote industry growth while preserving regulatory integrity.^[35]

Cross-Jurisdictional Analysis and Adaptation

To refine its regulatory approach, India can draw on successful online gaming taxation and regulation models from other jurisdictions, particularly from countries with mature, balanced frameworks. Analyzing regulatory frameworks from the United Kingdom, the United States, and select European countries would provide valuable insights for shaping India’s policies.^[36] Effective regulatory practices from these jurisdictions, such as clear tax classifications, compliance mechanisms, and consumer protection standards, could be adapted to India’s specific legal and economic landscape. Additionally, given the global nature of the online gaming sector, India would benefit from establishing cross-border collaborations to address challenges such as tax evasion, regulatory arbitrage, and international compliance, ensuring a more comprehensive, cooperative approach to sector regulation.^[37]

Structural Reforms in Regulatory Mechanisms 

The establishment of structural reforms within India’s regulatory framework is essential to creating a cohesive, legally sound environment for the online gaming sector. Key reforms would include a clear legislative distinction between games of skill and games of chance, providing much-needed clarity and consistency across jurisdictions and helping to avoid legal ambiguities that currently impact industry operations.^[38] The creation of a unified regulatory framework across states would address the problem of regulatory fragmentation, ensuring consistency in compliance requirements and fostering a stable operating environment for gaming platforms. Encouraging industry self-regulation under the supervision of government-appointed bodies would also strengthen the regulatory landscape by fostering responsible industry practices without impeding innovation.^[39] Furthermore, enhanced consumer protection measures, including responsible gaming protocols, data privacy standards, and safeguards against exploitative practices, are essential to building public trust and promoting a fair, transparent gaming environment.

6. Conclusion

The online gaming industry in India stands at a critical juncture, where technological innovation and regulatory oversight intersect. The current taxation framework, with a uniform 28% GST rate and 30% income tax on winnings, is a key factor that could shape the sector's trajectory. Our analysis reveals that the regulatory approach requires recalibration to balance industry growth and effective oversight.

The constitutional implications of the tax regime raise questions about the balance between regulatory control and fundamental rights. The uniform application of high tax rates, regardless of game skill level, appears to challenge judicial precedents and potentially infringe on the right to conduct legitimate business. This approach overlooks the nuanced nature of gaming formats and their varying skill involvement, risking the stifling of innovation and legitimate operations.

From an economic perspective, the high tax burden threatens profitability, potentially driving operators and consumers toward unregulated markets. This shift undermines revenue objectives and poses risks to consumer protection and responsible gaming practices. The potential market contraction could lead to substantial job losses across sectors, impacting India's position in the global digital economy.

The path forward requires a more nuanced regulatory approach. By implementing a differentiated taxation system, shifting to a platform fee-based structure, and establishing a specialized Gaming Commission, India can create a more conducive environment for industry growth. International cooperation and cross-jurisdictional learning will be crucial in developing effective frameworks that promote innovation while ensuring responsible gaming practices.

The evolution of India's online gaming sector represents broader challenges in regulating digital industries. Success requires a delicate balance between fostering innovation and maintaining control, generating revenue and ensuring sustainability, and promoting growth and protecting consumer interests. By adopting a forward-looking, evidence-based approach, India can position itself as a global leader in the digital gaming industry.

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