Gaming companies brace for compliance as Online Gaming Act enforcement begins May 1, 2026

India's digital gaming sector faces a regulatory overhaul on May 1, 2026, with the new Act prohibiting online money gaming and establishing rules for e-sports and social games. Companies need to tackle complex compliance, product-specific assessments, and potential penalties for incorrect classification, impacting business models and operational strategies.

ETLegalWorld

Published On Apr 28, 2026 at 02:22 AM IST

Highlights

India's Promotion and Regulation of Online Gaming Act, 2025 will come into effect on May 1, 2026, imposing prohibitions on online money gaming and establishing a new legal framework for e-sports and online social games.
The Act defines 'online money game' broadly, capturing any game where users pay fees with the expectation of winnings, presenting significant compliance challenges for gaming companies to determine whether their products fall within this category.
The Act introduces criminal liability for banks and payment gateways involved in transactions for online money gaming services, mandating stringent compliance measures and exposing intermediaries to potential legal repercussions if they aid in prohibited activities.

India's digital gaming sector, one of the fastest-growing in the world, will face its regulatory moment on May 1, 2026. That is the date the Promotion and Regulation of Online Gaming Act, 2025 and the accompanying Promotion and Regulation of Online Gaming Rules, 2026 formally take effect, setting in motion a prohibition on all online money gaming and building a new legal architecture for e-sports and online social games.

For a sector that generated an estimated INR 23,000 crore in revenue in FY24 and employed hundreds of thousands across platforms and tech infrastructure, the new framework is a deliberate effort to formally regulate the online gaming industry.

Advt The government notified the rules under Section 19 of the Act on April 21, 2026, with the Ministry of Information & Technology (MeitY) Secretary S. Krishnan emphasising a regulation-light approach aimed at reducing the compliance burden on the industry.

Likely Compliance Hurdles

Section 2(g) of the Act defines "online money game" as any online game, irrespective of whether it is based on skill, chance, or both, where a user pays fees or deposits money in expectation of monetary winnings. The definition extends to "other stakes," capturing virtual credits, tokens, coins, and any item "equivalent or convertible to money," real or virtual.

For companies operating on May 1, the compliance burden is product-specific. Registration for online social games has been made voluntary under the new rules, but the Online Gaming Authority of India (OGAI) retains suo motu powers to review any game.

Tanisha Khanna, partner at Trace Law Partners said, "The most immediate compliance hurdles from May 1 are determining, product by product, whether monetisation features bring a game within the online money game definition."

“From a compliance standpoint, companies will face significant operational challenges. Each game format will need to be assessed individually, including its payment flows, reward structures, revenue mechanisms, to determine regulatory obligations,” noted Anushree Rauta, equity partner and head of media, entertainment & gaming practice at ANM Global.

Advt “Additionally, while the Rules contemplate a 90-day determination period, the procedural timeline also poses uncertainty, as the determination process may extend beyond the prescribed period due to regulatory scrutiny, impacting product launches and iteration cycles.”

“The online game service providers must confirm whether their products qualify as e-sports or permissible online social games, failing which they risk falling within the prohibited category of ‘online money games’. Further, in the absence of a certification mechanism, increases chances of exposure to regulatory scrutiny and enforcement action for incorrect classification. Coming into effect from May 01, 2026, the online game service providers face high risk of penalties, blocking orders, or platform shutdowns for non-compliance,” said Shruti Kanodia, managing partner at Sagus Legal.

“Certain hybrid game formats such as loot boxes, NFT-linked plays etc., remain unresolved and will be left to the authority’s interpretation. The biggest hurdles for gaming companies from May 1 would be setting up grievance redressal mechanisms, implementing of user safety features including age-gating and time restrictions, with no transitional grace period whatsoever,” Naqeeb Ahmed Kazia, partner at CMS INDUSLAW.

Hardeep Sachdeva, senior partner at AZB & Partners said, "Companies will be dealing with a structural reset of their business models, requiring immediate reassessment of game formats, financial flows, and user engagement mechanisms ahead of the May 1 enforcement timeline."

Skill vs. Chance debate

The Act may have sidelined the skill-chance debate legislatively, but it has not extinguished the jurisprudential lineage stretching back to the Supreme Court's 1957 judgment in R.M.D. Chamarbaugwala v. Union of India, which held that games of skill fall outside the ambit of gambling laws. Courts have since repeatedly protected fantasy sports and card games on this basis.

"Companies cannot safely assume that a favourable skill-based characterisation will, by itself, answer the new statutory test," warned Ankit Sahni, partner at Ajay Sahni & Associates. "Under the new regime, the inquiry is likely to shift from merely asking whether skill predominates, to also examining whether money is staked, whether users expect winnings, and whether rewards have real-world or monetisable value."

“Companies that previously relied on skill-based classification to offer fantasy sports, card games, or prediction-based platforms, now need to completely overhaul their business by undertaking reassessment of their revenue structure and not their gameplay mechanics as skill versus chance is not under consideration regardless of the business model of the companies,” said Anish Jaipuriar, partner at IC Regfin Legal Partners LLP. “Companies should ideally consider restructuring their monetisation away from deposit based model and towards subscription, entry fee, or advertising-based revenue model which doesn’t include expectation of monetary enrichment in return.”

Arun Prabhu, partner and co-head of digital+, TMT at Cyril Amarchand Mangaldas said, "The Act itself prohibits online money games even if they are skill based." He noted that "judicial challenges on the basis of such distinctions will continue to make their way through courts."

"The Online Gaming Act can be challenged by the respective states with respect to its legislative competence given that 'betting and gambling' is categorised as a state subject under Entry 34 of List II of the Seventh Schedule,” said Kanodia.

Liability of Intermediaries

Section 7 of the Act creates criminal liability for any bank or payment gateway that enables transactions for online money gaming services, up to three years imprisonment and an INR 1 crore fine, rising to a mandatory minimum of three years for repeat offenders under Section 9(4).

“Enforcement mechanisms include blocking orders, as well as criminal enforcement. Intermediaries, including payment intermediaries are a key mechanism to track and enforce restrictions under the act, and as subject to direct restrictions on enabling restricted payments,” said Prabhu.

"The Rules place banks and payment gateways directly in the compliance chain, requiring them to verify registration before processing payments and halt fund flows in direction," said Rauta. She flagged the Finance Ministry's pending designation of gaming firms as "reporting entities" under the Prevention of Money Laundering Act (PMLA), which "would impose bank-grade KYC, transaction monitoring, and suspicious activity reporting obligations on platforms ill-equipped for such infrastructure."

“So long as an intermediary acts as a passive conduit and complies with its due diligence obligations, it is not liable for third-party content. PROGA does not disturb that position. However, if they shift from passive conduits to playing an active role in aiding, abetting, the offering and advertising of online money games, they may face potential criminal liability under PROGA,” said Khanna.