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Online Gaming in India and how it affects gamers

English हिंदी বাংলা मराठी தமிழ்తెలుగు

Brief overview of the growth of online gaming in India

In the last three years, the online gaming industry has expanded at a Compound Annual Growth Rate (CAGR) of 28%, reaching INR 16,428 crore in FY23 (Financial Year 2023). According to the latest EY report, “New Frontiers - Navigating the Evolving Landscape for Online Gaming in India,” it is projected to grow to INR 33,243 crore by FY28.

During the pandemic, more people downloaded mobile games because they wanted digital entertainment. In India, 94% of gamers use mobile phones for gaming. Despite the increase in game consumption, India's online gaming revenue is only 1.1% of the global total.

The EY report also indicates that the sector is expected to attract INR 22,931 crore in investments from both domestic and international sources between FY20 and FY24. Currently employing around 100,000 people, the industry is expected to increase its workforce to 250,000 by 2025.

Importance of understanding legal aspects in the context of rapid industry growth

We need to understand the legal aspects for the following reasons-

Data Protection: Given the large amounts of personal data handled by gaming platforms, compliance with data protection laws like the Information Technology Act, 2000, and the Digital Personal Data Protection Act is important.
Financial Risks: To handle financial risks, it’s important to know about rules on taxes, preventing money laundering, and foreign currency controls.
Consumer Protection: Following consumer protection laws ensures that customers’ interests are protected.

Current Legal Status of Online Gaming

Overview of Indian laws relevant to online gaming

The Public Gambling Act of 1867 in India, which is the primary law governing gambling in the country, is largely derived from the Gaming Act of 1845 and the subsequent Betting Act of 1853.

Central laws include-

Public Gambling Act, 1867: This is the primary law governing gambling in India. While it doesn't specifically address online gaming, it has been interpreted to cover all forms of gambling, including online. The Act prohibits most forms of gambling, but the distinction between games of skill and chance has often led to legal challenges.
Information Technology Act, 2000: This Act governs cybercrimes and digital transactions. While it doesn't directly address online gaming, provisions related to cybercrime, data protection, and online content are relevant to the gaming industry.

State-Level Laws

The nature of online gaming regulation varies widely across Indian states. Some states have specific laws governing gambling and gaming, while others rely on the Public Gambling Act.

Few prominent state laws include-

Distinction between games of skill and games of chance

The Indian legal framework relies on a clear difference between games of skill and games of chance. A game is considered a game of skill if a player's knowledge, mental ability, or physical skill mostly decides the outcome. On the other hand, a game mostly influenced by luck or random events is classified as a game of chance.

This difference is important because games of skill are usually allowed, while games of chance are often banned under the Public Gambling Act of 1867. Deciding where to separate skill from luck has caused many legal arguments and court cases.

Major legal cases and their impact on the industry

The Supreme Court of India (SC) has defined "mere skill" as games where success depends more on skill than on chance, classifying these as games of skill rather than gambling.

In the cases of State of Andhra Pradesh v. K. Satyanarayana & Ors. and State of Bombay v. R.M.D. Chamarbaugwala, the SC assessed the game of rummy under the skill versus chance principle. The court determined that rummy is a game of skill due to its reliance on memory and strategy for managing cards, unlike three-card games such as “Teen Patti Flush,” which are games of chance.

The SC acknowledged that card games, by nature, involve some chance due to the random distribution of cards but concluded that rummy involves sufficient skill. Such games are considered similar to business activities and are protected under Article 19(1)(g) of the Constitution of India, 1950, which guarantees the right to practice any profession or carry out any occupation.

Under the Constitution, Indian states have exclusive authority to regulate betting and gambling, including online gaming, as per Entry 34, List II. Recently, the central government has introduced regulations affecting gaming entities through amendments to the Information Technology Act, 2000, and the Information Technology (Guidelines for Intermediaries and Digital Media Ethics Code) Rules, 2021.

Some states have classified certain online gaming platforms as “common gambling houses,” even if they involve skill-based games, which conflicts with interpretations in other states. Therefore, the difference between games of skill and chance is typically evaluated on a case-by-case basis by individual states.

E-Gaming and GST

Explanation of Goods and Services Tax (GST) as it applies to online gaming

In the 50th GST Council meeting, a 28% GST was imposed on online gaming, casinos, and horse racing. This tax will be charged based on the full value of the transactions. The previous distinction between skill-based and chance-based games has been removed, applying a uniform 28% rate to all types of games.

The distinction between game of skill and game of chance mattered because games of skill were generally considered legal, while games of chance typically fell under gambling regulations.

The 28% GST on online gaming bets has significant effects on both players and operators. For players, it means higher costs for their gaming activities, which may lead to reduced participation. This could also push some to seek illegal platforms. For operators, the tax reduces revenue and profit margins, making it harder to invest in game development and other areas. They also have to deal with higher costs for managing and following the rules.

Regulatory Framework and Guidelines

Key regulatory bodies overseeing online gaming

As of now, India does not have a central authority regulating online gaming but the recent amendment to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Intermediary Rules”) indicate that the Ministry of Electronics and Information Technology (Meity) might be taking charge of online gaming.

However, the Constitution places "Gaming, Betting and Gambling" under the State List, giving individual states the authority to enact their own laws.

This has led to different regulations across the country.

Recent regulation regarding online gaming

On April 6, 2023, India established a new legal framework for online game operators by amending the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Intermediary Rules”). These changes are known as the “Gaming Amendments.”

The recent amendments regarding online gaming intermediaries are:

New Rule on User Harm: Rule 3(b)(ii) now includes "or an online game that causes user harm." This means intermediaries must remove games that harm users. "User harm" is defined as anything that negatively affects a user or child.
Self-Regulatory Authority: Rule 4A allows the online gaming self-regulatory body to ban online real money games based on wagering.
Legal Compliance: Under Rule 3(b)(xi), all intermediaries, including online gaming intermediaries, must ensure that their content or games comply with existing laws.

Mechanisms for resolving disputes and complaints

Given the nascent stage of online gaming regulation in India, the mechanisms for resolving disputes and complaints are primarily informal or rely on existing consumer protection laws.

In-Game Complaint Systems: Many online gaming platforms have their own internal complaint resolution systems. Players can often report issues directly to the platform, which then investigates and takes appropriate action.
Consumer Protection Act, 2019: In cases of financial loss or other significant harm, players can seek relief under the Consumer Protection Act.
Information Technology Act, 2000: Addresses cybercrimes and data protection aspects.
Contract Act, 1872: Governs contractual relationships between players and gaming platforms.

Role of the Gaming Industry in India

Economic impact of the gaming industry

The economic impact of the gaming industry is substantial, influencing various sectors of the economy. Some of them are-

Job Creation: The gaming industry creates numerous jobs directly within game development, design, programming, art, sound, and testing.
Investment:The growth of the gaming industry promotes investment in infrastructure, including technology, office spaces, and research and development facilities.
Tax Revenue: Gaming companies contribute to government revenue through corporate taxes.

Conclusion

In summary, understanding the legal aspects of online gaming in India is essential as the sector continues to grow and evolve. The recent amendments to the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, signify a shift towards stricter regulation, focusing on user protection and adherence to legal standards. These changes emphasize the need for both operators and players to stay informed with new requirements, including due diligence and taxation.

Frequently Asked Questions

1. What is the purpose of regulating online gaming?

The primary purpose of regulating online gaming in India is to protect players by ensuring fair play, preventing fraud, and addressing issues such as addiction. Regulation aims to maintain industry integrity by deterring illegal activities like money laundering and match-fixing. It also seeks to safeguard children by preventing underage gambling and exposure to harmful content.

2. What happens if I lose money due to fraud or cheating?

If you lose money due to fraud or cheating on an online gaming platform in India, you should first report the issue to the platform's customer support for immediate assistance. If the platform fails to resolve the problem, you can file a complaint under the Consumer Protection Act, 2019

3. Is my personal data safe when playing online games?

While there are data protection laws in India like the Digital Personal Data Protection Act, the specific implementation and enforcement in the online gaming industry is still evolving. Therefore, it is essential to be cautious about sharing personal information and to choose reputable platforms.

4. What is being done to prevent underage gambling?

Platforms usually enforce age verification processes to ensure that users are of legal age before allowing them to participate in gameplay. Parents can also use self-exclusion options to block their kids from accessing gaming platforms. The government and industry have launched awareness campaigns aimed at educating both parents and children about the importance of adhering to legal age requirements.

5. Is online gaming taxed?

Yes, online gaming is taxed in India.

The government introduced a 28% GST on online gaming, fantasy sports, and horse racing. Additionally, a 30% TDS (Tax Deducted at Source) is applicable on winnings exceeding Rs. 10,000

References

Written by Priyanshi Gupta

Priyanshi is a first-year Law student at National Law University, Jabalpur, currently pursuing BALLB. My interests lie in exploring emerging areas of law. She is eager to delve into the impact of ever evolving technologies on the legal landscape.