Online Gaming Companies in India: FDI Rules, Skill vs Chance & GST

India's Online Gaming Sector: A Market in Regulatory Transition

Under India's FDI policy, 100% foreign investment is permitted through the automatic route into online gaming companies classified under the IT & BPM sector -- but only for games of skill, esports, non-rewarding games of chance, and educational gaming. Since Parliament enacted the Promotion and Regulation of Online Gaming Act, 2025 (PROG Act) in August 2025, gambling, betting, and online money games are prohibited outright, regardless of FDI approval.

India's online gaming market had been one of the fastest-growing digital sectors globally: one of the world's largest mobile-gamer bases, low-cost smartphones, expanding 5G coverage, and frictionless UPI micro-payments converting casual users into paying players. For foreign companies evaluating India entry — or existing operators reassessing their position — understanding the current regulatory, FDI, and tax framework is critical. This guide covers the current landscape following the PROG Act's operationalisation in 2026.

FDI Framework for Online Gaming

Online gaming falls under the broader Electronic Systems and IT & BPM sector for FDI classification purposes. Under India's FDI policy, 100% foreign direct investment is permitted through the automatic route in the IT & BPM sector, which includes gaming companies, subject to important conditions.

Key FDI Conditions

Critical Distinction: FDI Is Not a Business Licence

The automatic route for FDI means no government approval is needed for the investment transaction. However, the gaming company must still comply with the PROG Act's licensing requirements, state gaming laws, and the GST framework. FDI approval is an investment-side clearance; it does not override content or activity-level prohibitions.

Pre-PROG Act FDI Landscape

Before the PROG Act, India's gaming sector had attracted several billion dollars of FDI, with the bulk flowing into real-money gaming platforms. Deal activity had already slowed sharply after October 2023, driven by uncertainty around the 28% GST regime and regulatory litigation.

The Skill vs Chance Distinction: A Legal Landmark

The skill vs chance distinction has been the central legal question in Indian gaming law for decades, with direct implications for FDI eligibility, tax treatment, and operational legality.

Historical Legal Framework

Indian courts, starting with the Supreme Court's 1957 decision in State of Bombay v. R.M.D. Chamarbaugwala, established that games predominantly of skill are protected as a fundamental right under Article 19(1)(g) of the Constitution, while games of chance constitute gambling and are subject to state prohibition.

This distinction drove the growth of skill-based gaming platforms — fantasy sports (Dream11), rummy (A23), poker (PokerStars India) — which operated under the legal protection of being classified as games of skill. The Karnataka High Court's February 2022 decision in All India Gaming Federation v. State of Karnataka was a landmark ruling that struck down the state's ban on online skill gaming, reinforcing the constitutional protection.

The PROG Act 2025: Rewriting the Framework

The Promotion and Regulation of Online Gaming Act, 2025, enacted on August 22, 2025, fundamentally altered this framework by creating three distinct categories:

The critical shift is in the third category. Previously, a skill-based game with real-money entry fees (like fantasy sports or rummy tournaments) was legally protected. Under the PROG Act, any online game involving staking money on an uncertain outcome is prohibited, regardless of whether the outcome depends on skill or chance.

The National Online Gaming Regulator

The PROG Act empowers the Central Government to constitute a national online gaming authority to regulate and register online gaming platforms. MeitY notified the Promotion and Regulation of Online Gaming Rules, 2026 on 22 April 2026 (in force from 1 May 2026), operationalising the Act and establishing the Online Gaming Authority of India, which maintains the registry of permitted online games, determines game categories, and enforces compliance.

GST on Online Gaming: From 28% to 40% on Face Value

The GST framework for online gaming underwent a seismic change in October 2023 when the GST Council imposed a uniform 28% rate on the full face value of bets placed, regardless of whether the game is classified as skill or chance. The 56th GST Council meeting went further: under the GST 2.0 rate overhaul effective 22 September 2025, specified actionable claims — betting, casinos, gambling, horse racing, lottery, and online money gaming — attract a 40% rate. Because the PROG Act prohibits online money games, the 40% rate matters mainly for the transition period and for enforcement against offshore operators; games without monetary stakes attract 18% GST on platform fees.

How GST Changed

Impact on Business Economics

The shift from 18% on platform fees to 28% on full deposit value was devastating for industry economics. Consider a practical example:

• Pre-October 2023: Player deposits INR 1,000. Platform takes INR 150 as fee. GST at 18% on INR 150 = INR 27. Platform retains INR 123.
• Post-October 2023: Player deposits INR 1,000. GST at 28% on INR 1,000 = INR 280. Platform's total pool for prize money and fees is now INR 720 — a 72% reduction in available economics.

The Supreme Court's GST Ruling

The blanket 28% GST was challenged before the Supreme Court through consolidated petitions, led by the Gameskraft case — originally involving a retrospective INR 21,000 crore GST demand. On 27 May 2026, the Supreme Court in DGGI v. Gameskraft Technologies (2026 INSC 595) upheld the levy of GST on the full face value of amounts staked on online money gaming, fantasy sports, and casino play, set aside the Karnataka High Court ruling that had quashed the Gameskraft show-cause notice, and restored the pending tax proceedings — reviving the industry's retrospective demands. The 40% rate for specified actionable claims has applied since 22 September 2025.

GST Registration and Compliance

Online gaming companies operating in India must obtain GST registration and file monthly returns. The point of taxation is the time of supply, which for gaming is when the player deposits money into the platform. Companies must maintain detailed records of all deposits, withdrawals, winnings, and GST collected. For foreign-based platforms serving Indian users, the requirement for GST registration applies through the OIDAR (Online Information and Database Access or Retrieval) services framework.

Entity Structure for Foreign Gaming Companies

Foreign gaming companies entering India typically consider three structures:

Wholly-Owned Subsidiary

A wholly-owned subsidiary incorporated as a private limited company is the most common structure for significant operations. This provides complete control, eligibility for registration under the PROG Act framework, and clear regulatory standing. The subsidiary requires at least one resident director and must be incorporated using the SPICe+ form. For entity structure options, see our Pvt Ltd vs OPC vs LLP comparison.

Branch Office

A branch office is possible but less common for gaming companies. Branch offices are subject to RBI approval and profit remittance restrictions. See our branch office vs subsidiary comparison for details.

OIDAR Service Provider

For gaming companies operating platforms from outside India and serving Indian users, the OIDAR services framework under GST requires registration and GST compliance in India even without a physical presence. This model is increasingly scrutinised post-PROG Act and may require additional compliance with registration requirements under the Act.

Compliance Framework for Gaming Companies

Gaming companies operating in India face a multi-layered compliance framework:

PROG Act Compliance

• Registration: Online games and platforms must be registered with the Online Gaming Authority of India under the Promotion and Regulation of Online Gaming Rules, 2026 (in force from 1 May 2026)
• Game categorisation: Each game offered must be categorised under the PROG Act framework — e-sports, online social game, or prohibited online money game
• Advertising ban: The Act prohibits advertisements of online money games in any media
• Ongoing obligations: Registered platforms must comply with the operational conditions prescribed under the 2026 Rules

State Gaming Laws

Despite the PROG Act being a central legislation, several states maintain their own gaming laws under Entry 34 of the State List (betting and gambling). Sikkim, Meghalaya, and Nagaland have specific online gaming licensing regimes. Companies must evaluate whether the PROG Act supersedes state laws in their specific category of operations.

Tax and Financial Compliance

• Corporate tax: Concessional rate of 22% (effective 25.17%) under section 200 read with section 205(1) of the Income-tax Act, 2025 (section 115BAA of the Income-tax Act, 1961) for gaming companies incorporated in India
• TDS on winnings: TDS at 30% on net winnings under section 393 of the Income-tax Act, 2025 (section 194BA of the Income-tax Act, 1961), with only a de minimis relaxation under CBDT guidelines where net winnings withdrawn do not exceed INR 100 a month
• Withholding tax: Dividends paid to foreign parent attract 20% withholding, reducible under DTAA
• Equalisation levy (abolished): The 2% levy on non-resident e-commerce operators was abolished in August 2024. The 6% levy on digital advertising was abolished in April 2025. Prior-period obligations may still apply.

FEMA Compliance

All FDI inflows must comply with FEMA regulations. The FC-GPR filing must be completed within 30 days of share allotment, and annual FLA returns are mandatory. Profit repatriation is freely permitted for current account transactions after paying applicable taxes.

Investment Climate Post-PROG Act

The PROG Act has created significant uncertainty for the online gaming investment landscape:

What Is Still Viable for FDI

• Esports platforms: Competitive gaming without real-money staking is permitted and actively promoted under the Act
• Educational gaming: Gamified learning platforms with no monetary stakes
• Social gaming: Entertainment-focused games without real-money mechanics
• Game development studios: Companies developing games for global markets, using India as a development hub

What Is No Longer Viable

• Fantasy sports with entry fees: Previously India's largest gaming category, now classified as online money games
• Real-money rummy and poker: Historically protected as skill games, now prohibited as online money games
• Casino-style games: Explicitly prohibited under both the PROG Act and existing gambling laws

Constitutional Challenge

The PROG Act faces significant constitutional challenges. Legal scholars and industry bodies argue that the blanket ban on real-money skill games conflicts with the Supreme Court's established jurisprudence protecting skill-based activities as fundamental rights under Article 19(1)(g). A batch of petitions challenging the Act remains pending before the Supreme Court, which agreed in August 2026 to take up final hearings; the outcome could substantially alter the regulatory landscape.

Tax Compliance Deep Dive for Gaming Companies

Income Tax and TDS Framework

The tax compliance burden on gaming companies operating in India extends beyond GST. Under section 194 (Table) of the Income-tax Act, 2025 (section 115BBJ of the Income-tax Act, 1961), net winnings from online games are taxed at a flat 30% in the hands of the player. The gaming platform bears the responsibility for TDS deduction (section 393 of the 2025 Act; section 194BA of the 1961 Act), which requires deduction at the time of withdrawal or at the end of the financial year, whichever is earlier.

For the gaming company itself, corporate tax applies at the standard rate of 22% (effective 25.17% with surcharge and cess) on profits. There is no concessional tax rate available for gaming companies comparable to the 15% rate that was offered to new manufacturing entities under section 201 read with section 205(2) of the Income-tax Act, 2025 (section 115BAB of the Income-tax Act, 1961) — a window in any case closed to companies that did not commence manufacturing by 31 March 2024. This tax differential is worth factoring into sector comparison models.

Equalisation Levy for Offshore Platforms

Foreign gaming platforms that do not have a physical presence in India but serve Indian users were historically subject to the 2% Equalisation Levy on gross consideration received from Indian users. This levy was abolished with effect from 1 August 2024 and no longer applies to current transactions; prior-period obligations for consideration received before that date may still be relevant.

Transfer Pricing for Group Structures

Foreign gaming companies operating through Indian subsidiaries must maintain arm's length pricing for all intercompany transactions, including technology platform licence fees, shared services charges, IP royalties, and marketing and branding costs allocated from the parent. Indian transfer pricing regulations require contemporaneous documentation, and the gaming industry's heavy reliance on intangible assets makes it a sector frequently scrutinised by the Transfer Pricing Officer.

Data Protection and Privacy Compliance

Gaming platforms collecting user data in India must comply with the Digital Personal Data Protection Act, 2023 (DPDP Act), which is being brought into force in phases following the notification of the DPDP Rules in November 2025. Key requirements include:

• Consent management: Explicit consent from users before collecting and processing personal data, with clear disclosure of purpose
• Age verification: Enhanced protections for minors, including verifiable parental consent for users under 18 — critical for gaming platforms that may attract younger users
• Data breach notification: Mandatory notification to the Data Protection Board and affected users within prescribed timelines
• Significant Data Fiduciary obligations: Large gaming platforms may be classified as Significant Data Fiduciaries, requiring appointment of a Data Protection Officer, periodic audits, and impact assessments

Non-compliance with the DPDP Act can attract penalties of up to INR 250 crore (approximately USD 30 million) per violation. For gaming companies already operating under GDPR or other international frameworks, mapping the DPDP Act requirements to existing compliance programmes is recommended.

Practical Recommendations for Foreign Gaming Companies

• Evaluate your game portfolio against the PROG Act categories: Determine whether each game is classified as a permissible game of skill, a social game, or a prohibited online money game. This classification determines your legal operating space.
• Engage with the regulator early: As the framework operationalises, early engagement with the national online gaming Authority can inform game categorisation and registration strategy.
• Structure GST compliance carefully: The 28% on full deposit value significantly impacts unit economics. Model your pricing and game mechanics accordingly, and ensure robust GST collection and remittance systems.
• Consider the game development hub model: India remains an attractive destination for game development with 100% FDI, a large talent pool, and competitive costs — even for companies whose games are marketed globally rather than in India.
• Monitor constitutional challenges: The Supreme Court proceedings on both the GST regime and the PROG Act could reshape the regulatory landscape. Foreign investors should track these cases closely.

Comparison with Other Jurisdictions

Foreign gaming companies comparing India to other Asian markets should note the regulatory divergence: India now prohibits real-money gaming outright, while jurisdictions such as the Philippines run licensing regimes for it and Singapore permits it only in narrow, licensed settings.

India's position as a game development hub remains strong despite the RMG ban, given the large English-speaking talent pool, competitive development costs, and established studios serving global publishers. Foreign companies may find the most effective strategy is to locate development operations in India while monetising through markets with more permissive real-money gaming frameworks.

Key Takeaways

• 100% FDI is permitted under the automatic route for online gaming companies in the IT & BPM sector, but FDI approval does not override the PROG Act's activity-level prohibitions
• The PROG Act 2025 bans all online money games — games where money is staked on uncertain outcomes — regardless of whether they involve skill or chance
• GST applies on the full face value of amounts deposited by players — 28% from October 2023, raised to 40% from 22 September 2025 for specified actionable claims including online money gaming — not on platform fees or GGR
• Esports, social gaming, and game development remain viable investment categories with full FDI access and a growing domestic market
• The Supreme Court upheld the face-value GST levy in the Gameskraft case (27 May 2026), while constitutional challenges to the PROG Act itself remain pending and could yet alter its scope

For foreign companies navigating India's evolving gaming regulatory framework, our FDI advisory service covers entity structuring, regulatory compliance, and sector-specific strategy. See also our guide on FDI in India for the broader investment framework.