India's online gaming ban triggers policy, tax, and trust clash

By Manoj Mishra

Not long ago, India’s online gaming sector appeared to be a digital success story. Between 2019 and 2024, the market expanded at a compound annual growth rate (CAGR) of 34.2%, growing from a niche interest into a USD 2.8 billion industry by 2022, and projected to reach USD 8.6 billion by FY27. With over 591 million gamers, India represents nearly 20% of the global gaming user base.

The ecosystem had attracted investor capital of USD 3 billion, created three unicorns, and generated over 200,000 jobs across design, technology, animation, and support services. For policymakers promoting India as a digital powerhouse, online gaming had begun to symbolise the potential for scale, employment, and tax revenue.

And yet, just as this sunrise industry was gaining momentum, it was struck by a storm. The Promotion and Regulation of Online Gaming Act 2025 now bans all forms of online money gaming, whether based on skill or chance. According to government data, approximately 450 million Indians have been affected by money-based games, with estimated household losses of Rs 20,000 crore. Citing the World Health Organization’s classification of ‘gaming disorder’ as a mental health condition, policymakers have linked online money gaming to suicides, money laundering, and potential terror financing.

Historically, India’s gaming laws have maintained a distinction between skill-based and chance-based games, allowing for a fragmented but functional regulatory framework across states. The new legislation removes this distinction, outlawing all real-money games, including rummy, poker, and chess-for-cash.

The Act does, however, encourage the growth of e-sports, educational games, and social games, seeking to frame a digital gaming policy that balances innovation with user protection. These segments, however, accounted for only 15% of India’s gaming revenue in FY24. The remaining 85% was driven by real-money games.

Tax Revenue Loss from Gaming Ban

In October 2023, a new goods and services tax (GST) structure was imposed at 28% on deposits rather than platform fees. Although initially expected to hurt the sector, the change resulted in significant gains for the government. In six months, GST collections totalled Rs 6,909 crore, averaging nearly Rs 1,100 crore per month, with projections of Rs 13,000 crore annually. Additional revenue included direct taxes at a flat 30% on winnings, contributing another Rs 4,000 crore, and corporate taxes from profitable platforms.

Industry estimates suggest that the ban could result in an annual tax loss of Rs 22,000 crore, taking into account GST, tax deducted at source (TDS), and corporate tax. While the government maintains the policy helps curb addiction, demand may shift to unregulated or offshore platforms, with grey market activity potentially exceeding Rs 8.2 lakh crore—beyond the reach of domestic taxation.

Impact on Ads and Global Investors

Advertising has also been affected. Online money gaming platforms had become some of the biggest advertisers in India, reportedly spending over Rs 10,000 crore annually, particularly during cricket events and on digital platforms. The Act prohibits the promotion and advertisement of banned platforms, putting this revenue stream at risk. Investors who backed India’s digital growth story are now dealing with declining valuations and policy uncertainty.

Internationally, India’s approach contrasts sharply with that of other countries. China restricts playtime for minors but continues to support its gaming industry. The United States excludes fantasy sports from gambling regulations, and countries in Europe, as well as Singapore and the Philippines, allow regulated real-money gaming. India's blanket ban could not only lead to a loss in tax revenue but also diminish its standing in the global digital economy.

There is also a constitutional issue. Betting and gambling fall under the State List. This raises questions about whether Parliament can invoke provisions related to digital finance and interstate commerce to impose a national ban. Legal experts argue that this could invite constitutional scrutiny and possibly strain relations between the Centre and the States.

Balancing Policy Caution with Growth

The Online Gaming Bill 2025 underscores a policy choice—prioritising social caution over fiscal and digital innovation. As India aims for its digital economy to contribute 20% of GDP by 2030, the removal of one of its fastest-growing sectors from the equation could have long-term consequences. Whether a framework based on deposit limits, stronger KYC norms, and oversight could have achieved similar safeguards without the fiscal impact remains open to debate.

India has opted for caution. The risk now lies with the government—whether the decision is economically sustainable, constitutionally valid, and globally competitive.

The author is a Partner and Tax Controversy Management Leader at Grant Thornton Bharat.
(With inputs from Shilpa Verma, Associate Director and Ajay Jha, Assistant Manager at Grant Thornton Bharat)