Evolving Regulations in the Online Gaming Industry
The online gaming sector in India has experienced a substantial boom in recent years, driven by the widespread availability of smartphones, enhanced internet connectivity, and shifting consumer choices. According to a KPMG and Google report, the Indian online gaming market was valued at $1.1 billion in 2020 and is anticipated to reach $2.8 billion by the end of 2023.
This surge has attracted millions of participants, engaging in diverse gaming options ranging from fantasy sports to skill-centric card games, turning the industry into a substantial contributor to the economy.
The rapid expansion of online gaming has prompted various amendments to the gaming laws in India. In this blog post, we will delve into the changing landscape of regulations within India’s online gaming industry.
Legal Framework Surrounding Online Gaming in India
The constitution of India has bestowed powers to both the state and the central government to regulate different facets of entertainment (gaming and entertainment forms a part of entertainment) . At the central level, online games in India are regulated by the Public Gambling Act 1867 and the Information Technology Act 2000.
Under Entry 34 II of the Indian Constitution, the state government has the power to legislate matters only related to “betting and gambling”. However, several states have made efforts to regulate or prohibit online skill gaming through amendments or ordinances under this provision.
Take for example rummy. In 1968, the Supreme Court of India ruled that rummy is a game of skill. Despite that many states in India have banned online rummy for stakes.
Game of Skill vs Chance
As per the Supreme Court of India, a skill based game is one where the outcome is dependent on the expertise, practice, and experience of the player. However, there is no precise formula that can be employed to conclusively differentiate between a game primarily based on skill and one primarily reliant on chance due to the prevalence of various factors at play.
Also, when it comes to the legal definition, the distinction is attributed to the presence of skill, yet the law is somewhat ambiguous regarding which specific games fall into this category. To add to the complexity, there isn’t a centralized record of prohibited games.
Therefore many states have challenged the Supreme Court’s ruling and banned these online games. Moreover, the Public Gambling Act is an old law and ill-equipped to handle the challenges of the online skill-based gaming industry.
Hence, in November 2022 an inter-ministerial task force suggested the development of fresh central legislation to regulate online gaming in India.
Recent Developments in Online Gaming Laws in India
The central government quickly acted upon the task force’s recommendation. The Ministry of Electronics and Information Technology (Meity) published draft revisions to the IT (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (IT Rules) for public input, particularly concerning online gaming. These IT Rules pertain to intermediaries, providers of news and current affairs content, and creators of curated online content.
The Proposed Amendment
The proposed draft amendments were designed to govern online gaming platforms that provide games involving real money. The main modifications proposed in the draft amendments were as follows:
- Online gaming platforms will be required to register with Meity as publishers of online curated content.
- Online gaming platforms will need to secure a valid license or authorization from the appropriate governing body to offer games involving real money
- Online gaming platforms will have to establish a self-regulatory system, encompassing a self-regulatory body and oversight mechanisms, to ensure compliance with the Code of Ethics and IT Rules.
- Online gaming platforms will have to verify the age and identity of their users through a know-your-customer (KYC) process and guarantee that minors are prevented from accessing or participating in games involving real money.
- Online gaming platforms will need to transparently display information on their websites or apps, including terms and conditions, game rules, prize pool, and the manner in which prizes are distributed.
- Online gaming platforms will be required to implement measures to prevent addiction, fraud, money laundering, and cheating among their users. They must also promptly report any suspicious or unlawful activities to the relevant authorities.
The draft was open for public review till 31 January 2023.
Online Gaming Rules are Revisions to the IT Rules 2000
On April 6, 2023, Meity officially introduced the Online Gaming Rules as revisions to the IT Rules. These Online Gaming Rules predominantly encompass the proposed draft amendments, with certain changes.
- Online gaming platforms must register with Meity within three months from the date when the rules were notified or when they commence their operations, as these registration rules will become effective three months after the initiation of the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Amendment Rules, 2023.
- Online gaming platforms must obtain a license or permission from the state government where they offer games involving money or other stakes. In cases where there is no relevant state law or authority, they must obtain a license or permission from Meity.
Taxation
Till FY (2022-23) TDS (Tax Deducted on Source) was deducted if the profit earned was more than Rs. 10,000. However, the central government announced that TDS will be applicable for every rupee earned. The rule kicked in from April 1, 2023.
Additionally, the GST council during its 50th and 51st general meeting announced a uniform 28% GST on Online Gaming. The council also obliterated the debate between games of skill vs chance.
What Lies Ahead for the Online Gaming Industry
Online gaming in India operates within a legal framework that is still evolving and adapting to the changing landscape. However, this proactive approach not only aims to protect the interests of both the gaming platforms and their players but also aligns with the broader objective of establishing a well-regulated and transparent gaming environment in India.
