About online Skill-based gaming
- Online gaming refers to playing video games or engaging in multiplayer experiences over the internet
- Platforms: Online games can be played on various devices, from dedicated gaming consoles (PlayStation, Xbox, Nintendo Switch) to PCs, laptops, and mobile phones. Online skill-based gaming has the potential to harness programming, design, and storytelling talent to leapfrog India to the top of the tech leaderboard globally.
Why in the news?
The Supreme Court has recently upheld the Union government’s order demanding retrospective GST on the online gaming sector accounting ₹1.12 lakh crores highlighting the need to deregulate the online gaming sector.
- With India’s 650 million smartphone users and a youthful population, the country has the potential to leverage gaming as a driver of technological innovation, employment, and economic expansion.
- However, stringent taxation policies, ambiguous regulatory frameworks, and retrospective taxation demands threaten to stifle the sector’s growth.
Potential of Online Skill-Based Gaming
- It is one of the major sunrise sectors of India. The online gaming industry has grown exponentially, with three Indian startups achieving unicorn status. According to a PwC report, the sector:(a)Accounted for ₹33,000 crore in 2023. (b)It is projected to double to ₹66,000 crore by 2028, growing at a CAGR of 14.5%.
Why Online Gaming Matters for India’s Tech Ecosystem?
- Fostering Talent: The sector harnesses skills in programming, design, and storytelling, creating a multi-disciplinary innovation hub.
- Boosting Exports: India can become a global exporter of game development, animation, and AR/VR technologies.
- Startups & Investment Growth: The gaming ecosystem is attracting venture capital and international investment, further strengthening India’s digital economy.
Challenges Hindering Growth
- Excessive Taxation and Retrospective GST Demand: The Supreme Court’s 2025 stay order on the Union government’s ₹1.12 lakh crore retrospective GST demand highlighted how excessive taxation threatens industry survival.
- Online gaming tax( 28% GST), a rate similar to gambling, liquor, and tobacco. Smaller startups struggle to comply with such taxation, risking bankruptcies and shutdowns.
- Conflation with Gambling and Betting: Some State governments imposed bans on online gaming, classifying them as gambling.
- Courts later overturned these bans, recognizing that “games of skill” are legal and distinct from gambling. However, misconceptions about gaming persist, affecting regulatory clarity.
- Risk of Illegal Offshore Gaming Sites: Excessive taxation can drive users towards unregulated gambling sites, which operate offshore beyond Indian regulatory reach.
- Such platforms pose national security and financial risks while depriving the Indian economy of legitimate tax revenues.
- Societal Concerns: Families and regulators are concerned about gaming addiction and excessive screen time.
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Important Judgement on Game of Skill Vs Game of Chance
- R.M.D. Chamarbaugwala v. Union of India(1957): The Supreme Court ruled that predominantly skill-based games are classified as games of “mere skill” and are protected under the Constitution of India as legitimate trade and business activities.
- The games where chance outweighs skill are classified as gambling and subject to regulatory prohibitions.
- State of Andhra Pradesh v. K. Satyanarayana(1968): The Supreme Court addressed the legality of the card game ‘Rummy’ and held that although Rummy involves an element of chance it is the player’s skill in memorizing and strategizing that determines the outcome.
- This decision has been foundational in differentiating skill-based games from chance-based games in Indian law.
- Manoranjithan Manamyil Mandram v. State of Tamil Nadu, (2005): The Madras High Court ruled that determining whether a game is a game of skill or chance is a “question of fact” that must be decided based on the specific circumstances of each case
Solutions to the above challenges
- Rationalizing Taxes: NO tax on online gaming at par with gambling, liquor, and tobacco. Instead, a differentiated tax structure should be there, recognizing gaming as an entertainment and skill-based industry rather than a vice.
- Developing a Transparent Regulatory Framework: A national policy framework in collaboration with industry stakeholders is necessary.
- Policies should address: Skill-based gaming vs. gambling distinction as well as Consumer protection measures (age restrictions, self-exclusion options).
- Encouraging Investment in Gaming R&D: Incentives for game development startups to create Indian-origin games with cultural and educational value. Moreover, establish gaming incubators and research hubs to promote innovation in AR, VR, and AI-based gaming.
- Strengthening Consumer Awareness: Gaming platforms must self-regulate to identify problematic behavior and promote responsible gaming.