India's Online Gaming Landscape: Growth, Regulations and Opportunities

Online gaming companies in India, are subject to a number of laws and regulations. These laws and regulations are designed to protect consumers, ensure fair play, and prevent illegal gambling.

Some of the key laws and regulations that online game companies in India have to abide are

1. The Information Technology Act, 2000: This Act regulates the use of electronic records and transactions in India. It includes provisions that are specifically designed to protect consumers using online services. It includes provisions on data protection, privacy, and cybercrime.
2. The Public Gambling Act, 1867: This Act prohibits gambling in India. However, there are a number of exceptions to the general prohibition, including games of skill.
3. The Consumer Protection Act, 2019: This Act protects the rights of consumers in India. It includes provisions on the collection and use of personal data by businesses. This Act also includes provisions that allow consumers to file complaints against companies that violate their rights.
4. The Juvenile Justice (Care and Protection of Children) Act, 2015: This law protects the rights of children in India. It includes provisions on the collection and use of personal data of children by businesses.
5. In addition to these laws and regulations, online game companies in India may also be subject to other laws and regulations, such as the Indian Contract Act, 1872.

The Ministry of Electronics and Information Technology (MeitY) recently notified new regulations for online gaming in India. The regulations, which came into effect on April 6, 2023, aim to regulate the online gaming industry in India. The inclusion of Online Gaming Intermediaries in the IT (Intermediary Guidelines & Digital Media Ethics Code) Rules, 2021, is a significant development and gives a clear idea of the government’s approach towards Online Gaming Intermediaries. The Government needs to provide clear guidance on taxes and measures for consumer protection. With proper regulations in place, online gaming in India has the potential to become a thriving industry, providing employment and entertainment for millions of people.

Some of the key provisions of the regulations include

Permissible online real money games: The regulations only allow online real money games that are verified by self-regulatory bodies (SRBs). SRBs are organizations that are set up by the online gaming industry to regulate itself. The Ministry of Electronics and IT (MeitY) has announced new regulations to protect online gamers from harmful content and addiction. A self-regulation model has been applied for the online gaming sector where SROs will approve the games that can operate in the country in accordance with the rules. These new online gaming rules have been included by way of an amendment to IT Rules of 2021. Further, the Indian Government defines an online game as “a game that is offered on the Internet and is accessible by a user through a computer resource or an intermediary.”

Duties of online gaming intermediaries: Online gaming intermediaries, which are platforms that host or facilitate online gaming, are required to comply with various obligations enumerated under Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021, which were issued by the Ministry of Electronics and Information Technology (MeitY) in February 2021 and updated on April 6th 2023.

REGULATORY CHALLENGES

The online gaming industry in India is growing rapidly, but it is also facing a number of regulatory challenges. Here are some of the challenges that online gaming companies in India are facing:

1. Lack of clarity in the law: The laws governing online gaming in India are not clear, and this creates uncertainty for gaming companies specifically pertaining to privacy laws and taxation. For example, the privacy protection framework for online gaming in India is still evolving. The bill was introduced in the Lok Sabha (lower house of the Indian Parliament) on December 11, 2019, and is currently still under consideration. There have been changes proposed in GST regime which can impact the industry grossly.
2. Varying State laws: The laws governing online gaming in India vary from State to State. Some more stringent than the other, this can make it difficult for gaming companies to operate across the country, as they need to comply with the laws of each State.
3. Addiction and fraud: There is a growing concern with respect to addiction and fraud in the online gaming industry. This is a challenge that gaming companies need to address in order to safeguard their consumers and also to avoid any serious repercussions such as ban in the country. Hence, companies will have to implement responsible gaming practices and take steps to prevent frauds.

PLAY TO PLAY OR PLAY TO EARN?

There are two models under which an online gaming company develops a game i.e. Play to Pay or Play to Earn. In this article, we have focused on the intricacies around Play-to-play games. These games that are generally free to play and does not involve any stakes or prizes. Players can compete against each other in a variety of game modes without putting money at stake as is the case in ‘play to earn’ game.

Some of the factors that contribute to the play-to-play format:

1. The game is free to play: Under this model, the game is free to play, which means that players do not have to spend any money to play the game.
2. The game does not involve any stakes or prizes: Since the game under this model does not involve any stakes or prizes, players cannot win real money or prizes by playing the game.
3. The game is mostly skill-based:  The game under this model is  mostly skill-based, which means that players can improve their chances of winning by learning the game mechanics and developing their strategies.

India's play-to-play online game industry is booming. The industry is expected to grow at a CAGR of 22.3% from 2021 to 2026. The growth of the industry is being driven by several factors, including:

1. The increasing popularity of smartphones and mobile internet in India.
2. The growing number of young people in India who are interested in gaming.
3. The increasing availability of high-quality play-to-play online games.
4. The increasing investment in the Indian gaming industry by both domestic and international companies.
5. The play-to-play online game industry in India is a diverse industry that includes a wide variety of games.

LICENSE FOR PLAY TO PLAY ONLINE GAMES IN INDIA

Play-to-play games do not require a MeitY (Ministry of Electronics and Information Technology) license or RBI (Reserve Bank of India) license in India. The MeitY regulations only applies in case of online real money games, which involves stakes or prizes that are wholly or partly in the form of money or electronic credits or tokens that can be redeemed for money. Since play-to-play games typically do not involve any stakes or prizes, they are not subject to the MeitY regulations. However, it is important to note that the MeitY regulations may be updated in the future to include play-to-play games. If this happens, then play-to-play games may require a MeitY license.

It is also important to note that there may be other laws or regulations that applies to play to play games. For example, the Information Technology Act, 2000 may apply to play-to-play games if they are hosted or facilitated by an online gaming intermediary.

Some States in India have their own laws and regulations that may apply to play to play games. For example, the state of Andhra Pradesh has a law that prohibits the development and operation of online games that are "addictive or gambling in nature”

Here are some of the factors that Online gaming companies should consider when determining whether they need a license to start a play to play online game in India:

1. The specific rules of the game: Dynamics of the game shall determine whether it requires a license for the same. Such as in case where there are stakes or prizes involved, then it may require a license.
2. The target audience: The target audience for the game will also determine whether it requires a license. If the game is targeted at minors, then it may require a license.
3. The location of the game servers: The location of the game servers will also determine whether it requires a license. If the game servers (data center) are located in India, then it may require a license.

INSURANCE

Insurance is an essential component that an online gaming company should consider, while starting a business in India. Few such insurance includes:

1. Cybersecurity insurance: Cybersecurity insurance covers the costs of a cyberattack, such as the cost of repairing the damage caused by the attack and the compensation payable to the customers in case of loss suffered by them.
2. Data breach insurance: Data breach insurance covers the losses occurring on account of unauthorised access to sensitive data or confidential information.
3. Professional liability insurance: This type of insurance protects the company from financial losses that may arise from errors or omissions made by its employees.
4. Employment practices liability insurance: This type of insurance protects the company from financial losses that may arise from employee lawsuits, such as wrongful termination or discrimination.
5. Intellectual property insurance: Intellectual property insurance covers the costs of infringement of the company's intellectual property, such as its games or its trademarks.
6. Property insurance: This type of insurance protects the company's physical assets, such as its computers, servers, and office space.

The cost of insurance for online gaming companies in India shall vary depending on the specific risks that the company foresee. However, insurance cover safeguards these online gaming companies against any financial losses.

DUE DILIGENCE AND PRE-REQUISITES

The legal landscape for online gaming in India is still evolving, but there are several steps that an online gaming company can consider to safeguard itself from any disciplinary action.. Some of these steps include:

1. Having clear and transparent terms of service: The terms of service should clearly outline the rules and regulations of the online gaming platform, including the types of games that are allowed, the maximum amount of money that can be wagered, and the procedures for resolving disputes and liquidated damages if any.
2. Having a robust privacy policy: The privacy policy should clearly outline how the company collects, uses, and shares user data. Game developers can address security concerns by ensuring that their games do not contain any content that could be used to spread propaganda or collect sensitive data from Indian users. They can also work with the Government to ensure that their games are compliant with all relevant laws and regulations.
3. Having a robust anti-fraud and anti-money laundering (AML) policy: The anti-fraud and AML policies should outline the company's procedures for preventing fraud and money laundering. The policy should also comply with the Prevention of Money Laundering Act, 2002.
4. Having a robust customer support system: The customer support system should be fairly available and should be able to handle a variety of customer inquiries. The system should also be able to resolve disputes in a timely and efficient manner.
5. Having a robust risk management system: The risk management system should identify and mitigate the risks associated with online gaming. The system should also be able to respond to incidents in a timely and efficient manner.
6. Addressing public order concerns: Gaming companies shall create necessary public awareness by making appropriate disclaimers at the time of promoting their games and also at the time when these games are downloaded. This can help the users to play these games responsibly. The companies can also work with the Government to frame the guidelines for development and operation of the online games.
7. Stay up-to-date on the latest regulations: Gaming companies need to stay up-to-date on the latest regulations governing online gaming in India. This will help them to ensure that they are compliant with the law and avoid any penalties.

RECENT DEVELOPMENTS UNDER GST LAWS

The Goods and Services Tax (GST) Council, in its 50th meeting held on July 11, 2023 recommended that the actionable claims supplied in supplied in Casinos, Horse racing and Online gaming may be taxed at the rate of 28% on full face value, irrespective of whether the activities are a game of skill or chance. Accordingly, GST Council in its 51st meeting held on August 2, 2023 recommended for amendment in Schedule III to provide clarity on the taxation of supplies in casinos, horse racing and online gaming cover online gaming. The new GST rate shall come into effect from October 1, 2023. Hence, the said amendment shall have a prospective effect.

Further, in order to cover the online gaming in Schedule III of CGST Act, an amendment in the said Schedule has been approved for covering online gaming as a part of taxable actionable claims. Consequently, there will not be any difference between game of skill and game of chance with respect to applicability of GST rate of 28%.

As was recommended by GST Council in its 51st meeting, CBIC vide Notification No. 45/2023- Central Tax dated 6 September 2023, has amended CGST Rules by introducing Rule 31B and 31C. Rule 31B provides that value of supply of online gaming including supply of actionable claim involved in online gaming shall be the total amount paid or payable to or deposited with the supplier by way of money or money or money’s worth, including virtual digital assets, by or on behalf of player. Rule 31C provides for value of supply of actionable claims in casino. The date of applicability of these Rules shall come into force from the date as Central Government by notification in official gazette appoint.

Further, it was recommended that foreign suppliers will have to register in India for which separate procedure will be provided i.e. registration for offshore gaming companies shall be made mandatory.

For the period prior to this amendment, the GST department has been treating the games of skill and games of chance at par. Therefore, authorities in many cases are issuing notices to the online gaming companies for seeking GST @ 28%. One such prominent case is of Karnataka High Court in case of Gameskraft vs State of Karnataka (2023) SCC 123, wherein the GST department is of view that online games played with stakes is betting and gambling and same is covered by entry 6 of Schedule III to CGST Act, therefore liable for GST @ 28%. HC in this case held that in a game of mixed chance and skill, if the game is predominately and substantially a game of skill it shall not be treated as gambling and therefore not covered by entry 6 of Schedule III to CGST Act. Department has gone into appeal before Supreme Court against this Order. Supreme Court in the hearing held on 6 September 2023 has stayed the application of judgement pronounced by Karnataka HC

CONCLUSION

India's online gaming industry is on the cusp of significant growth, benefitting from a vast consumer base and expanding market opportunities. As this dynamic sector continues to evolve, it promises a bright future for online gaming. However, alongside these opportunities come regulatory challenges, to successfully navigate this multifaceted terrain, online gaming companies must diligently adhere to an array of laws and regulations meticulously crafted to safeguard consumers and uphold the principles of equitable play.