India bets ₹1.12 lakh crore against its own gaming future

India should know better. From Vodafone to Cairn, the price of retrospective taxation has been crippling: industries decimated, investor sentiment nosedived, and policy eventually reversed after international arbitration—causing diplomatic embarrassment and reputational damage. History doesn’t just rhyme here—it’s on a loop.

Repeating old mistakes under the guise of protectionism is both turbulent economics and a credibility crisis. Unless we build institutional clarity around game classification and base policy on evidence, not assumption, we risk bleeding a billion-dollar industry for the low-hanging fruit of short-term gains.

Let us now examine the two futures that hang in the balance.

Scenario 1: If Retrospective Taxation Prevails

If the retrospective GST demand—totalling over ₹1.12 lakh crore—is upheld, the consequences will be dire.

Major stakeholders: game developers, platforms, investors, and consumers, will be hit hard. Investor sentiment will nosedive; over $1 billion was raised in 2024 alone, and much of it now looks at risk. The 66,000 professionals currently employed, many in high-skill, exportable tech roles, will face job insecurity.

More dangerously, overregulation will drive users to black-market platforms, where money laundering and data privacy breaches flourish unchecked. The government may believe it's plugging a leak, but it’s about to open a floodgate.

For an industry that saw ₹232 billion in revenue in 2024, this policy could gut operations. A disillusioned startup ecosystem will deter future ventures into real-money or skill-based platforms.

Moreover, the exchequer itself stands to lose. As registered firms shut down or shift overseas, GST collections will plummet, and enforcement costs will skyrocket. Without a predictable regulatory environment, India risks forfeiting its 20% share of the global gaming user base. In such a scenario, everyone, consumers, companies, and the state, loses.

In a global economy where capital is mobile and reputation matters, reviving the ghost of retrospective taxation signals policy regression. It contradicts our own reformist narrative and discourages the very investors and innovators we are courting in sectors like semiconductors, clean energy, and AI. The online gaming industry is only the first casualty if this precedent holds.

So, what if we stop this déjà vu before it becomes a catastrophe?

Scenario 2: If Retrospective Taxation Is Not Upheld

If the Supreme Court strikes down the ₹1.12 lakh crore retrospective tax claim, India’s message will echo loud and clear: it prioritises credibility over short-term gains. Online gaming platforms, investors, global policymakers, and every digital-first business await India’s next move—watching closely to see whether the country treats its digital economy as a partner or a pariah.

The distinction between games of skill and games of chance is not a loophole—it is the dividing line between legitimate innovation and regulatory overreach. Most advanced economies, from the UK to Singapore, tax only the platform’s Gross Gaming Revenue (GGR). Indian firms are not asking for exemptions or special treatment. They are asking for a level playing field.

This policy pathway is not experimental. The 18% GST on GGR model is a globally accepted standard that ensures the government taxes real income—not user money that never leaves the ecosystem.

India’s online gaming sector, already clocking 28% CAGR and over 500 million users, is projected to reach ₹316 billion by 2027 and create more than 2 million jobs by 2030. Lowering the tax burden would turbocharge this growth, while protecting national interest. Currently, India is losing both revenue and control by users and operators migrating offshore, where there’s no GST and no consumer protection. A calibrated tax policy would signal that India can distinguish between innovation and evasion, while bringing money back into the system.

Crucially, it would revive investor trust. Funding has dried up since the 28% GST was enforced. Reversing course would re-open the tap, bringing FDI and venture capital back to the table. Early-stage companies—some now paying more tax than they earn—could finally focus on product development, compliance, and responsible gaming.

The government should have anticipated the potential impact on businesses and aimed to balance higher revenue collection with long-term growth and the economic sustainability of the sector.

The Final Gambit

India stands at a precipice: will it strangle its digital future with a ₹1.12 lakh crore noose of retrospective taxation, or recognise the shortsightedness of such fiscal arbitrariness?

The online gaming industry lies bleeding at the altar of regulatory confusion while offshore competitors feast on our missed opportunities.

Choose wisely: cultivate growth or harvest its remains.

History will remember this moment as the day India either embraced its digital destiny—or gambled it away.

(Smita Singh, Partner at S&A Law Offices.)

Views are personal, and do not represent the stance of this publication.