India's recent overhaul of its online gaming laws has marked a significant pivot away from the traditional skill-versus-chance debate, particularly in regard to real-money gaming. While the new framework paves the way for regulated esports and social games, it has left many businesses in a state of uncertainty as they adapt to the new rules.
The Promotion and Regulation of Online Gaming Act, 2025 (PROG Act) and the Online Gaming Rules 2026 came into effect on May 1, 2026. This legislation has imposed a blanket ban on online money gaming, in alignment with a Supreme Court ruling from August 2025, which effectively closed the door on real-money gaming in India.
The PROG Act categorizes online gaming into three distinct types: online money games, esports, and online social games. Aaron Kamath, co-head of the Tech, Digital and Commercial Law Practice at Nishith Desai Associates, notes that the definition of an “online money game” is broadly interpreted within the framework. He states, “Other stakes” is expansive, encompassing various forms of currency, whether real or virtual, utilized in gaming environments.
An online money game is characterized as any game where participants pay or stake money or its equivalent with the expectation of receiving monetary benefits, irrespective of any skill or chance involved. Esports competitions are defined as organized, competitive events requiring physical and mental agility, without the involvement of betting, and they must meet registration criteria specified under the 2026 Rules.
On the other hand, online social games are intended mainly for recreation and cannot involve monetary stakes. Revenue can be generated through subscriptions, access fees, advertising, and in-game purchases, as long as none of these payments function as a stake or wager.
Historically, India's legal perspective distinguished between skill and chance. Previous Supreme Court rulings had established that games involving substantial skill are classified as legitimate business undertakings, unlike gambling, which is not constitutionally protected. However, with the PROG Act, any stakes involving monetary value count as online money games, regardless of the skill involved.
Crucially, the legislation also prohibits any form of marketing or facilitating payments for online money games, categorizing violations as criminal offenses, which carry severe penalties, including possible imprisonment and hefty fines. These regulations extend to international operators targeting Indian users, as the government can mandate banks and payment services to block transactions linked to such games.
Despite the restrictive nature of the new law, opportunities do exist. Kamath asserts that while the market has constricted, avenues still remain for monetizing online social games through non-wagering mechanisms. Additionally, esports can still monetize through entry fees and prizes, given they adhere strictly to the rules against betting.
Prior to the enactment of the PROG Act, major gaming platforms like Dream11 and MPL began suspending cash games, adapting to a market that increasingly favors free-to-play models supported by sponsorships and advertising. The implementation of a 28% GST on the total deposits for real-money platforms has further emphasized that any stakes are vulnerable to taxation.
The law presents several ambiguities that pose challenges for compliance. The definition of who qualifies as an “online game service provider” remains broad, potentially implicating elements like app stores and aggregators rather than just developers. Moreover, the rules for recognizing esports under the National Sports Governance Act are still pending clarity, affecting how tournaments could operate in relation to entry fees and prize distributions.
Another area of concern involves payment regulations, where any adjustments in payment processing require notification to regulatory authorities, which could encompass even minor operational changes. This introduces ambiguity and risks of non-compliance for companies in the gaming sector.
Kamath urges businesses to seek paths free from stakes altogether to ensure compliance, recommending ad-supported free-to-play models and subscription services that ensure no link exists between payment and winning chances. He warns against assuming all virtual currencies are exempt; even tokenized currencies could be treated as stakes if they can be used in wagering.
As the legal landscape evolves, Kamath expects scrutiny above all on the lines between social and real-money games. Although the Act permits virtual currencies and in-game items, these are treated cautiously, and cosmetic purchases remain unregulated as long as they do not directly relate to winning.
The future compliance outlook favors larger, well-capitalized gaming firms that can manage comprehensive compliance obligations more readily. Smaller or foreign operators may face additional challenges regarding regulatory compliance due to the costs associated with local requirements.
The shift in India's gaming legislation may lead to market consolidation, as companies adapt to the new rules or pivot their strategies towards casual gaming formats. However, the broad recognition of esports and social gaming bodes well for investment potential in the sector, provided there is clearer operational guidance from regulators on critical aspects like payment processes and data management.
For operators, navigating this evolving framework will require deliberate attention to classification, monetization, registration, and compliance, all while remaining adaptable to further regulatory developments.
