India has introduced a new online gaming regulatory framework that clearly delineates its stance on real-money gaming, effectively ending the age-old debate between skill and chance in gaming. The new regulations create defined pathways for esports and social games while prohibiting real-money gaming, following an earlier Supreme Court ban in August 2025.
As this regulatory framework takes effect, businesses face uncertainty regarding several key aspects, including the definitions of gaming categories, compliance requirements, and payment structures. Analysts note that further regulatory guidance will likely be necessary to clarify these ambiguities and help operators avoid inadvertent non-compliance.
On May 1, 2026, the Promotion and Regulation of Online Gaming Act, 2025 (PROG Act) and the Online Gaming Rules ushered in fundamental changes affecting the country's digital gaming landscape. A significant shift occurred with the categorization of games into three distinct types: online money games, esports, and online social games, as outlined in Section 2 of the PROG Act.
Aaron Kamath, co-head of the Tech, Digital and Commercial Law Practice at Nishith Desai Associates, pointed out that the definition of an online money game under the PROG Act is intentionally broad. The term ‘other stakes’ encompasses a wide range of items, including credits, coins, and tokens, whether real or virtual, which are acquired directly or indirectly with money.
Kamath explained that almost any format that combines a paid entry with a monetary or equivalent reward now falls under this classification, effectively nullifying the relevance of the previously debated skill-versus-chance distinction. An online real-money game is described as one where users stake money or its equivalent with the expectation of a monetary return, irrespective of skill or chance.
For esports, the regulation outlines that events must involve competitive multiplayer interactions involving physical and mental skills without any wagering or staking involved, and they must adhere to registration requirements set forth in the 2026 rules.
Online social games are categorized primarily for entertainment or skill development, without monetary stakes or financial risks for users, but can utilize models like subscriptions, advertising, and in-game purchases for revenue.
The PROG Act marks a departure from the previous legal framework that differentiated between skill and chance games. Historically, the Supreme Court ruled in 1957 that skill-based competitions could be recognized as business activities under the Constitution, while gambling lacked this protection. Prior to the implementation of the PROG Act, courts had ruled that formats like fantasy sports, as presented by platforms like Dream11, were primarily games of skill and thus not classified as gambling.
Now, however, the new regulations state that any activity where users stake money with the expectation of returns is considered an online money game, making such activities subject to prohibition, even if they exhibit skill.
The Act extends its reach beyond just operational dealings, imposing strict penalties for advertising online money games or facilitating payment for them, which could result in imprisonment of up to three years or fines reaching INR 1 crore (approximately $106,000). Offshore operators are also implicated, as banks and payment providers can be directed to inhibit transactions relating to non-compliant offerings.
Despite the stringent regulations, there remain viable segments within the online gaming market. Kamath identifies online social games as having potential, particularly with monetization strategies excluding stakes from their payment models. Registered esports can charge fees related to participation, while ensuring no betting or wagering occurs.
Prior to the implementation of the PROG Act, many real-money platforms, including Dream11 and MPL, transitioned to free-to-play models, taking a lead to adapt. The Supreme Court's ruling on the 28% GST assessable on real-money gaming platform deposits further emphasizes the need for compliance within this new framework.
While some aspects of the law remain ambiguous, Kamath emphasizes the limited avenues for businesses to navigate without falling foul of the regulations. Companies are advised to reconsider how their games are classified and structured in the wake of compliance requirements.
Compliance obligations appear broad and could extend to app stores and aggregation platforms. There is also ongoing uncertainty concerning the criteria for esports registration, as these were not delineated at the time the PROG Act took effect. Payments must be reported to the Authority prior to changes, which might include even minor operational updates.
Looking ahead, Kamath anticipates that the boundary between social and real-money games will attract increasing scrutiny. The Act does not ban virtual currencies or in-game items as long as they do not function as stakes for potential winnings, but regulators will likely focus on how money flows and how rewards are utilized within these frameworks.
The evolving landscape may benefit larger operators who can more readily absorb the compliance costs related to data retention and user data management, while smaller or foreign operations could struggle with the new obligations.
Ultimately, while challenges are evident in terms of regulatory compliance, the continued investment and national recognition of online social games and esports in India signal a burgeoning market for operators willing to adapt within a structured regulatory environment. Kamath underscores that proactive engagement with the Authority will be essential, especially for clarity around key operational aspects as they evolve.
