India: Gaming Law Updates 2022

Background

The online gaming industry, though in its nascent stage, has steadily grown over the past five years. There have been significant movements as the gaming industry looks to further expand in India. Below are certain significant updates / events that have occurred in the online gaming industry in the recent past:

1. Google to allow fantasy sports and rummy applications as part of pilot programme

In a recent development, Google Play has launched a pilot programme wherein it has allowed fantasy sport and online rummy applications to be listed on the Google Play store. The pilot programme will run for a period of one year between 28 September 2022 and 28 September 2023¹. The pilot programme will not include paid applications. Further, the applications that are a part of the pilot programme will not be permitted to use the Google Play in-app billing.²

Google Play has announced that developers who are interested in listing their respective applications as part of this pilot programme must make an application for the same as well as comply with applicable Google terms and conditions, and local laws.

This pilot programme is a significant development considering that thus far Google has prohibited real money gaming applications including Mobile Premier League and Dream 11 from being listed on its play store, as such applications violated Google's existing policy on gambling.

2. Tax proceedings against Gameskraft

In what is considered as the largest indirect tax show-cause notice issued, the Directorate General of GST Intelligence ("DGGI") has issued a show-cause notice to Gameskraft Technologies Private Limited ("Gameskraft"), a Bangalore based gaming firm, for non-payment of goods and services tax ("GST") amounting to INR 21,000 crore for the period between 2017 to June 2022.³ It is pertinent to note that prior to issuing the show-cause notice to Gameskraft, the DGGI had already issued an intimation notice of outstanding tax dues to the company. Gameskraft had obtained a stay order on the intimation notice from the Karnataka High Court. Further, the DGGI has also informed the Court that similar proceedings are underway against other online gaming companies in India.⁴

The DGGI has alleged that INR 77,000 crore worth of bets were placed with Gameskraft, on which a GST of 28% is applicable. Further, the DGGI has also contended that several instances have been detected wherein Gameskraft had failed to issue invoices to its customers or had issued false invoices.

On its part, Gameskraft had filed a plea in the Karnataka High Court on 26 September 2022, against the show-cause notice received from the DGGI. The DGGI has informed the Court that coercive actions such as the attachment of property of Gameskraft will not be carried out until the next date of hearing, which is scheduled for 11 October 2022.

Interestingly enough, Khaitan & Co. is representing Gameskraft in the proceedings before the Karnataka High Court and has received favourable interim orders.

3. Tamil Nadu Government challenges high court order on online gaming

The Madras High Court vide its order dated 3 August 2021, struck down a part of the Tamil Nadu Gaming & Police Laws (Amendment) Act, 2021 ("Amendment Act") which amended the Tamil Nadu Gaming Act, 1930 to ban all forms of online games, including games of skill. However, this order has been challenged by the Tamil Nadu Government before the Hon'ble Supreme Court which has issued notices to the All India Gaming Federation as well as gaming firms such as Junglee Games, Play Games24x7, and Head Digital Works and asked them to respond as part of the proceedings.

In the proceedings before the Hon'ble Supreme Court, the Tamil Nadu Government argued that the Amendment Act was within the legislative competence of the State legislature and the Madras High Court had erroneously held the Amendment Act to be outside the legislative purview of the state legislature. In this regard, the High Court had stated that the State did not provide sufficient evidence to support the need for a complete ban on games of skill, nor had it shown why a more moderate restriction would not be adequate.

On 26 September 2022 the Tamil Nadu Government approved an ordinance to ban online gaming within the State of Tamil Nadu.⁵ The ordinance will be promulgated after receiving the assent of the governor.

The Government of Tamil Nadu's challenge of the Madras High Court's order to quash the Amendment Act is currently sub-judice before the Hon'ble Supreme Court.

4. Kerala Government mulls proposal to ban online rummy

In February 2021 the Government of Kerala amended the Kerala Gaming Act of 1960 to ban online rummy. However, this amendment was challenged by various gaming companies before the Kerala High Court which proceeded to quash the amendment in September 2021. The Government of Kerala has challenged the decision of the Kerala High Court before a division bench of the Kerala High Court.

In August 2022, Kerala Chief Minister Mr. Pinarayi Vijayan, announced that the State Government is considering a legislative amendment to the extant gaming laws of the State to regulate online games, subject to the outcome of the State Government's appeal in the Kerala High Court.⁶ The Chief Minister has noted that there have been several instances of people losing their earnings and the trend of players availing loans to play such online games in the hope of reversing their fortunes.

5. Taxation of online gaming

The money won by players from online gaming applications have fallen under the scrutiny of the Central Board of Direct Taxes ("CBDT"). In September 2022, the CBDT contended that these earnings by participants of online games are a substantial amount, with just one gaming portal having distributed INR 58,000 crores in the last three years.⁷ The CBDT has mandated that a tax rate of 30% must be paid by winners of online games, on such earnings, with no rebates permitted. The aforesaid proposal of the CBDT is in line with the extant tax framework which prescribes deduction of tax at the rate of 30% for all winnings in excess of INR 10,000, prior to such winnings being transferred to the relevant player.⁸

On 15 February 2022, the CBDT raided a Mumbai based business group which was engaged in online cricket betting and gaming across several of its locations including Mumbai, Delhi, Surat, Jaipur, Pune, and Kolkata. During the raid, cash turnover amounting to INR 600 crores along with foreign currency and jewellery were recovered.⁹

Based on the aforesaid developments, it is evident that the CBDT is looking to ensure stronger regulation of and stricter compliance by the stakeholders of the gaming industry.

6. Inter-ministerial task force

In the Union Budget 2022-2023, the Central Government revealed that an Animation, Visual Effects, Gaming and Comic ("AVGC") promotion task force ("Task Force") would be set up to build domestic capacity in the AVGC sector and help facilitate global demand.¹⁰ The Ministry of Electronics and Information Technology, which has constituted the Task Force, includes members from NITI Aayog as well as the secretaries from the Ministry of Home Affairs, the Department of Revenue, Department for Promotion of Industry and Internal Trade, the Ministry of Information and Broadcasting ("IB Ministry") and the Ministry of Electronics and Information Technology. The seven member Task Force is in the process of drafting regulations which are proposed to be implemented for the regulation of online games and will encompass certain concerns of the Government, including establishing a daily limit on the amount of money that may be spent by a user on an online game.¹¹ While the draft regulations or the related deliberations of the Task Force have not been made public at the time being, nonetheless, the establishment of the Task Force will assist in aligning and bringing in clarity to the Indian gaming industry. Further, with the formation of the Task Force, public consultation will be initiated which will lead to the resolution as well as further clarity on several concerns in the industry¹².

Industry stakeholders such as the All-India Gaming Federation and the Federation of Indian Fantasy Sports have welcomed the decision of the Government to recognise the rapidly developing online gaming industry.¹³ It will be interesting to note the outcome of the deliberations of the Task Force which will be met with significant interest and scrutiny from the industry stakeholders.

7. Advertisement of betting platforms

The IB Ministry on 13 June 2022, vide its Advisory No. DM/15/2022-DM ("Advisory"), issued an advisory to the print, electronic and digital media to refrain from advertising and promoting online betting platforms and websites. The Advisory is issued to publishers and online advertisement intermediaries recommending them to refrain from displaying or directing any advertisements in relation to online betting platforms and websites, either online or in print. Further, the Advisory observes that there has been a significant increase in the number of online and print advertisements being published which promote online betting platforms and websites.¹⁴

The Advisory states that online betting advertisements are 'misleading' and do not appear to be in strict conformity with Indian consumer protection regulations and advertisement laws / standards or journalistic norms, which state that advertisements should not be deceptive and should not make false guarantees about the product or service being advertised.

The Advisory from the IB Ministry has sought to completely prohibit any advertisement which pertains to online betting platforms. The intention of the Advisory is to ensure that (a) Indian print and digital advertisers do not advertise online betting platforms; and (b) nobody in India is exposed to an advertisement promoting an online betting platform.

Conclusion

The gaming industry is currently undergoing significant and constant changes in relation to various aspects, including introduction of new forms of games such as opinion trading and the usage of cryptocurrencies, amendments to state gaming laws, pronouncement of orders / judgments by various High Courts and the Supreme Court of India, and an increased level of scrutiny by various enforcement bodies. In light of this dynamic nature of the industry, it is anticipated that the gaming industry will see significant changes in its regulatory framework in the coming months.

Footnotes

1 Google Play Pilot Program for DFS and Rummy apps, https://support.google.com/googleplay/android-developer/answer/12491011?hl=en.

2 Google Play store reverses policy on fantasy gaming, rummy apps in India, https://economictimes.indiatimes.com/tech/technology/google-play-pilots-programme-for-day-fantasy-sports-and-rummy-apps-in-india/articleshow/94066757.cms?from=mdr.

3 Gaming co gets record Rs 21,000 crore GST notice, https://timesofindia.indiatimes.com/business/india-business/gaming-co-gets-record-rs-21000-cr-gst-notice/articleshow/94442054.cms.

4 Major tax crackdown on online gaming firms in India; Rs 21,000 Cr GST notice sent to Gameskraft, https://www.businesstoday.in/latest/corporate/story/major-tax-crackdown-on-online-gaming-firms-in-india-rs-21000-cr-gst-notice-sent-to-gameskraft-348131-2022-09-25.

5 TN approves ordinance to ban online gaming in the State, https://www.thehindubusinessline.com/news/tn-approves-ordinance-to-ban-online-gaming-in-the-state/article65938063.ece.

6Kerala govt planning to amend gaming laws to curb online rummy, https://www.business-standard.com/article/current-affairs/kerala-govt-planning-to-amend-gaming-laws-to-curb-online-rummy-122082400148_1.html.

7CBDT asks the winners of online games to pay taxes, file updated ITR, https://www.business-standard.com/article/economy-policy/cbdt-asks-the-winners-of-online-games-to-pay-taxes-file-updated-itr-122082600199_1.html.

8 Section 194B, Income Tax Act, 1961.

9 ? 600 Crore Turnover Found During Raid Of Online Cricket Betting Group, https://www.ndtv.com/india-news/rs-600-crore-turnover-found-during-raid-of-online-cricket-betting-group-income-tax-department-2787484.

10Budget 2022-2023, https://www.incometaxindia.gov.in/budgets%20and%20bills/2022/budget_speech.pdf.

11Online Gaming Task Force May Set Spend Limits In Framework, https://economictimes.indiatimes.com/tech/technology/inter-ministerial-group-drawing-up-rules-for-gaming/articleshow/93715346.cms.

12Online Gaming Task Force May Set Spend Limits In Framework, https://economictimes.indiatimes.com/tech/technology/inter-ministerial-group-drawing-up-rules-for-gaming/articleshow/93715346.cms?from=mdr.

13 The gaming industry lauds the government's decision to set up an Animation, Visual Effects, Gaming and Comics promotion task force, https://www.businessinsider.in/advertising/media/news/the-gaming-industry-lauds-the-governments-decision-to-set-up-an-animation-visual-effects-gaming-and-comics-promotion-task-force/articleshow/89277729.cms.

14 I&B ministry bans advertising of online betting platforms, https://www.livemint.com/industry/media/i-b-ministry-bans-advertisements-of-online-betting-platforms-11655115880128.html.