India’s
economic credibility on the global stage rests heavily on a foundational principle of tax certainty. When businesses and investors commit capital to our markets, they do so relying on the predictability of our regulatory and tax frameworks. However, a recent Supreme Court judgment threatens to awaken the ghost of retrospective taxation, a spectre we assumed had been laid to rest after the protracted Vodafone and Cairn Energy disputes.
By upholding the constitutional validity of a new GST regime (on online gaming) brought into effect in October 2023 and allowing its retrospective application, the ruling in DGGI vs Gameskraft Technologies (2026) has effectively imposed an estimated 2.5 lakh crore in historical tax demands.
It is an undeniable fact that the gaming sector has its share of regulatory issues that require serious legislative attention. However, the foundational tax principle at stake here transcends gaming. It can be argued that, if longstanding tax positions, accepted in practice by the industry and regulators alike, can be reopened and heavily penalised retrospectively, no sector in India’s digital economy is safe. Today it is the gaming industry; tomorrow, it could be another.
Between 2020 and 2024, the gaming sector attracted billions of dollars in investment based on the prevailing tax understanding. Retrospectively rewriting the rules renders these investments a complete write-off, triggers the insolvency of otherwise viable businesses, and initiates the personal liability of young start-up founders. More dangerously, a retrospective tax demand from an industry that is effectively shutting down is practically unrecoverable. Such a demand yields no actual revenue for the exchequer, but signals regulatory unpredictability to global venture capital. Furthermore, taxing a domestic industry into oblivion does not cure the social ills associated with gaming.
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Domestic exit fuels offshore migration
Global and domestic experience demonstrates that when compliant, regulated domestic operators are forced to exit, users immediately migrate to offshore, illegal gambling websites. A survey-based analysis in Tamil Nadu revealed that 83% of surveyed gamers shifted to unregulated offshore betting sites following domestic restrictions.
These offshore platforms operate via VPNs, anonymous digital ecosystems, and cryptocurrency channels, outpacing the oversight of Indian law enforcement. By inadvertently weakening the domestic ecosystem through retrospective taxation and blanket bans like the Promotion and Regulation of Online Gaming Act (PROGA), we unintentionally strengthen an unregulated, offshore underground.
This underground ecosystem severely lacks KYC standards, responsible gaming measures, operates without grievance redressal mechanisms, and serves as a conduit for money laundering. Tragically, it is in this unregulated dark space where Indian citizens are most vulnerable to financial fraud, extreme financial distress, and gambling-related suicides.
While the government is working to take action against illegal and offshore platforms, the internet space is endless, wherein enforcement will always struggle to keep pace. This juncture presents a critical opportunity for the government to engineer a win-win scenario for the state, the economy, and the citizens. The objective should not be to open new business avenues for entrepreneurs but to fiercely protect our citizens from the predatory practices of illegal, offshore syndicates. The government must formulate a mechanism to enforce strict, globally accepted regulatory practices over a limited set of online money games.
By doing so, the state can achieve two vital objectives: First, it can establish a realistic framework to recover GST from future revenue and secure additional future tax collections. And, secondly, it can protect vulnerable citizens by keeping them within a regulated, monitored domestic perimeter rather than abandoning them to offshore operators.
A stable, prospective tax framework combined with strict, protective regulation is not a concession to industry. It is a necessary shield for the Indian consumer and a prerequisite for India’s continued standing as a predictable destination for global investment.
Karti P Chidambaram is a Member of Parliament for Sivaganga, and a Member of the All India Congress Committee. His X handle is @KartiPC. Views are personal.
(Edited by Maryam Hassan)