Did you know that India is home to the world’s second-largest gaming community, boasting a staggering 425 million gamers, just behind China? This rapidly growing sector already employs 100,000 people and is expected to create an additional 250,000 jobs by 2025. It’s a hub of innovation, fostering collaboration among animators, developers, engineers, and pushing the boundaries with technologies like AI, machine learning, and cloud computing. Market Expansion: The online gaming segment is projected to reach INR 33,243 crore by FY28, reflecting a CAGR of 14%.There is a very huge demand for online gaming as we may overtake China as the highest user base but govt. taxation and regulatory issues are a huge concern for the sector.
Impact of 28% GST on Real money online gaming
The recent changes to India’s GST regime have severely impacted skill-based online gaming companies. According to a joint study by Ernst & Young (EY) and the U.S. India Strategic Partnership Forum (USISPF), the new 28% tax on deposits has led to major challenges for these companies, including plummeting revenues and razor-thin profit margins. In some cases, this shift has rendered the entire business model unsustainable.
Since the implementation of the new tax rules on October 1, 2023, no capital has been raised in this sector, with several companies reporting a withdrawal of marquee global investors. The situation is particularly dire for smaller companies, which now face a shrinking topline, with 25% of businesses experiencing revenue declines of up to 50% .For most of the new startup the GST absorbed was at times 50 percent of the revenue or at times more than 100 percent of the revenue leaving no money for investment in marketing leading to low user acquisition . Additionally, operational challenges like reduced hiring and layoffs in crucial departments such as technology, product development, and animation have been noted.
The gaming sector had previously been a magnet for foreign direct investment (FDI), attracting $2.6 billion since 2019, with 90% of the investments focused on pay-to-play models. However, the increased GST burden, which now consumes up to 50-100% of revenue for some companies, has dampened growth potential. This has prompted industry leaders to call for an amendment to the current GST calculation method, advocating for a switch from taxing the full value of deposits to taxing platform fees—the actual revenue retained by gaming companies for operating their platforms. Such a change could bring the Indian tax system more in line with international standards, where countries like Poland and Portugal levy taxes on deposits at rates of 12% and 8%, respectively.
If left unaddressed, the high taxation rate may push users towards offshore gaming platforms, leading to a potential loss in revenue for the Indian government. Experts like Bipin Sapra, Tax Partner at EY India, have suggested that applying GST to Gross Gaming Revenue or platform fees could mitigate the damage to the industry and support its growth in the future
Impact of GST on Dream 11
Dream11, one of India’s largest fantasy gaming platforms, is reportedly set to face an 80% cut in profits due to the recent hike in GST on online gaming. The Indian government’s decision to impose a 28% tax on the full value of deposits, as opposed to the previous practice of taxing only the platform fee, has significantly impacted the profitability of companies like Dream11.
This drastic reduction in profit is a consequence of the sharp rise in operational costs following the GST amendments. Many companies in the online skill-based gaming industry have voiced concerns that this taxation policy not only reduces margins but could also make the business model unviable, especially for smaller operators. As Dream11 grapples with this challenging regulatory environment, the entire sector is undergoing a reevaluation of its strategies to survive under the new tax regime.
Strategy by other RMG players like MPL and WinZO
In response to the new GST regime, which has severely impacted the online gaming industry in India, companies like MPL (Mobile Premier League) and WinZO are adjusting their strategies to stay afloat amidst these regulatory challenges.
MPL’s Strategy:
MPL, a prominent player in the real money gaming space, has taken steps to diversify its offerings beyond real-money gaming. The platform is pivoting towards casual games, esports, and non-monetary tournaments to mitigate the impact of the 28% GST on deposits. This shift helps MPL reduce reliance on pay-to-play models, which have become less profitable due to the new tax structure. Additionally, MPL is exploring international markets to expand its user base and revenue streams, seeking to offset the domestic taxation pressure by tapping into countries with more favorable tax regimes for online gaming.
WinZO’s Strategy:
WinZO has adopted a two-pronged strategy to cope with the tax burden. First, it is focusing on user engagement through innovative gaming formats, social gaming, and influencer-driven marketing to enhance user retention and attract new players. WinZO is also exploring ways to offer games with lower entry points, thereby reducing the tax impact on users while keeping its player base intact.
Second, like MPL, WinZO is looking at expanding into international markets, particularly in regions where online gaming regulations are more favorable. This diversification not only reduces dependency on the Indian market but also opens up new revenue opportunities that are less affected by India’s high taxation rate. Furthermore, WinZO is reportedly working on streamlining operational costs and seeking investor confidence by emphasizing its adaptability in this new regulatory environment.
Conclusion
The viability of real money online gaming as a business in India has become uncertain due to recent regulatory changes, particularly the imposition of a 28% GST on deposits. While the industry has shown significant growth in recent years, attracting $2.6 billion in FDI since 2019, the new tax regime has led to profit cuts of up to 80% for major platforms like Dream11. Smaller operators are facing even greater challenges, with stagnant revenues, investor withdrawals, and layoffs across the sector.
Despite the industry’s potential for job creation and innovation, this steep tax burden could stifle growth and push users toward offshore platforms, further impacting the domestic market. For real money online gaming to remain viable, regulatory reforms—such as taxing platform fees rather than deposits—are essential. Without such adjustments, the sector may struggle to maintain its momentum, putting the long-term sustainability of the business at risk
Tips:
If you are interested in opening a fantasy app or real money gaming app relying only on gross gaming revenue will not make you profitable .Make a cross gaming platform like having fantasy sports with ludo or rummy so more users remain engaged . Have in app purchases for services and wait for the govt regulation to come so that there is no regulatory and legal issue with the app .
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