Somnath Zende, 39, a police sub-inspector (PSI) in Pimpri-Chinchwad, Pune’s largest satellite city, says he trains at the gym for two hours, before work begins at 9 a.m. To build his body, he spends ₹600 daily on protein shakes and other supplements, besides his expenditure on the gym membership.

About three months ago, as chatter about the ICC Men’s Cricket World Cup grew through media channels and across dining tables, his brother, Ganesh, 26, downloaded Dream11, a fantasy sports app, on Zende’s budget smartphone. Zende himself ‘invested’ ₹1,500 on creating Dream11 teams over the next few months, a great deal less than what he spends on bodybuilding each week.

But on October 10, when he won ₹1.5 crore for assembling a ‘fantasy’ winning cricket team for the England-Bangladesh match in Dharamshala, Zende was suspended for “promoting” real-money gaming, as a senior officer in the Pimpri-Chinchwad police says. The officer adds that playing these games is “not socially correct”.

The suspension laid bare the continuing tension between governments and law enforcement officials concerned about Indian citizens’ mental health on one hand, and fantasy sports gaming companies concerned about revenue, on the other. A Deloitte report from 2022 values the nascent industry at ₹34,000 crore.

Euphoric from the win, Zende, in uniform, had given media interviews — including to the BBC — that went viral, speaking in Marathi about how he had assembled the team that led to the win. The reason for his suspension on paper was that he had violated Maharashtra State Police’s code of conduct by a) playing the online game without permission from his unit commander, b) giving media interviews about his personal victory in uniform, and c) potentially being on the app while on duty.

An inquiry was opened into whether he was playing the game on duty as a PSI of the riot control police. “We would have been very happy if he had won in the real team 11,” says one of the officers on the investigation team.

App happy

Fantasy gaming apps allow users to deposit money in-app to build a virtual team or teams of players, and pit them against others. Users may win different amounts, depending on players’ actual on-ground performance. Those who top the leaderboard win the maximum cash, with a few others also reaping in some benefit. Many simply lose their money; some get back just what they had put in.

Much like mutual funds and stock market investment firms do with all advertising, companies in the real-money gaming app space declare the cash people put in as “financially risky”. However, these companies have successfully resisted the “betting and gambling” label in India’s courts. In fact, Dream11, which calls itself a strategy-based game, and others like it, have been upheld in various judgments as centred around skill that cannot be prohibited by State governments. This makes earnings from these apps taxable, and Zende will get roughly two-thirds of the ₹1.5 crore after fees and tax deductions.

In the past though, the concern of at least four State governments — reflected in various court proceedings in the High Courts — is that real-money gaming is in essence, gambling.

Dream11, one of the official partners for the ongoing ICC World Cup, raked in over ₹4,000 crore in annual revenue in 2021-22. Founded in 2008 as a free-to-use fantasy league for cricket fans, it began in-app purchases in 2012, and has grown to be the biggest fantasy sports league in India, with over 20 crore registered users playing across live cricket, football, and kabaddi, according to its website. “In the fiscal year 2022, Dream11 had the highest ad spend among fantasy sports and real-money gaming companies in India, with around 21.6 billion Indian rupees,” says an article on Statista, a data intelligence service.

Legal eagle

Recalling the day he won, Zende says, “A friend called me up and told me my name was flashing on TV. I was so happy. I told my wife immediately, and she said, ‘That’s not possible; things like this don’t happen’.” But it had. After two weeks, he talks about the win with a certain nonchalance, to some extent because of all that has happened since: the indefinite suspension from service, the viral reach of his win, and the media circus around both.

As videos featuring interviews of Zende went viral on WhatsApp, and Pimpri-Chinchwad, an emerging industrial hub, came into the limelight, a local politician took note. Amol Thorat, who was until recently the city’s BJP general secretary, shot off a letter to the police commissioner and to other top officials in the State government. Forwarded interview clips made it look to him like Zende was promoting online gambling, Thorat’s aide says. “He took up this issue and gave a letter to the commissioner saying it’s against the law. And the pressure started building up.”

On his part, Zende, who has not broken his routine of going to the gym from 6 a.m. to 8 a.m., refuses to speak about the suspension while he is being investigated. He has busied himself visiting relatives in and around Pimpri. “My philosophy in life is just to be happy, no matter what,” says the family man, with two children, aged 7 and 3, as he breaks into a faint smile. When the term “online gambling” comes up, he quickly clarifies, “Not online gambling, skill gaming.”

Vinayak (first name withheld on request), a police constable, who works under Zende, says, “He doesn’t take tension (sic) at work. Outside the station, he freely speaks his mind.”

Born to farmers in Jejuri — a part of the Pune district and home to the Shaivite Khandoba Temple, a pilgrimage destination — Zende moved to Pimpri in 2011 and started work as a constable in 2012. After three years of preparation and obtaining a B.A. degree, he cleared the Maharashtra Public Service Commission’s entrance examination to join as a PSI in 2016. He had started working out around this time.

Concerns of States

States have been worried about the rise in people landing in financial trouble, and worse, taking their lives from the trauma of losing lakhs of rupees when they play real-money games online. Gaming disorder is a mental health condition, after all. In Tamil Nadu alone, a four-member committee found that 17 people in the State had killed themselves after they had lost money on these apps. States such as Karnataka and Tamil Nadu tried to prohibit these games, but the bans were overturned in their respective High Courts.

Some States decided that enough was enough. Zende’s was one of them. A Group of Ministers (GoM) chaired by Maharashtra was formed at the GST Council, the powerful body that decides the rates and terms of sales taxes. The plan was simple: instead of taxing firms like Dream11 on the 5-20% commission they imposed, charge the entire amount that users deposited.

“Activities detrimental to social well-being should not be encouraged or promoted,” Sudhir Mungantiwar, a Maharashtra Minister, who headed the GoM, said in its final meeting. Minutes of that meeting, released in October, say that he took a “resolute stance” on the issue. The tax, which kicked in on October 1 this year, is 28% of the ‘face value’ of bets. This means that if a user puts ₹100 into their wallet on the app, ₹28 will be taxed, against the earlier ₹4 or less.

Sanjay Malhotra, the Union government’s Revenue Secretary, went even further: people were being taxed less when they were risking their money than when they were buying essential food items, he complained. Whether something was a game of skill or chance wasn’t the determining factor anymore. Everything was taxed: from casinos and horse races to real-money games and lottery tickets.

The industry has been quiet since the tax was announced, after briefly expressing anguish at its imposition. “We are deeply distressed,” one firm lamented in a press statement. Real-money gaming began internationally in the late 1990s, with India picking it up in the early 2010s. It boomed as Internet prices fell and smartphones became cheaper and apps more accessible.

A top office-bearer of the Federation of Indian Fantasy Sports, of which Dream11 is a founding member, declined to discuss either the current legal situation or Zende’s dismissal. Another top official from the All India Gaming Federation, with 56 member companies on its membership rolls, did not respond to calls. A Dream11 spokesperson declined to comment too.

Zende hasn’t decided what he will do with the money yet, not even if he will pay off his ₹30-lakh home loan for a house he has bought in Pimpri-Chinchwad. As he waits for the inquiry report, due in about six months, he’s clear about one thing: he won’t quit his job, even though he has won far more than his salary will amount to over his police career. “I won’t leave this job,” he says. “I’ve worked very hard for it.”

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The video gaming industry has said the term ‘online gaming’ is a broad and ambiguous term that is causing confusion among gamers, games publishers, international investors and media amid the GST row. Image used for representational purposes only.
| Photo Credit: Special Arrangement

As many as 45 video game companies in India on July 26, 2023, wrote to the Prime Minister’s Office and to the Ministries of Information & Broadcasting, and Electronics & Information Technology, seeking to put distance between themselves and the real-money gaming industry, amid the ‘widespread confusion’ caused by the latter being referred to as ‘online gaming’.

The real-money gaming industry, which consists of fantasy sports, poker, rummy and other such apps where users can deposit money and compete with other users, has been hit with a 28% GST on all deposits, a move that the industry has criticised. Both the government and the real-money gaming industry use the phrase ‘online gaming’.

The video-gaming firms, such as Outlier Games, SuperGaming and Firebolt Entertainment, are now calling for the government to put an end to this confusion. “‘Online Games’ is too broad […] a term and carries a different meaning in Indian jurisprudence compared to the global understanding, leading to confusion among gamers, international investors, game publishers, and media during the GST row,” the firms said in their letter to the PMO, which has been viewed by The Hindu. 

“This confusion has played a considerable part in fuelling the recent controversy on 28 percent GST. What is being called “Online Games/Online Gaming” in India is known as ‘iGaming’ internationally.”

Also Read | The blurred lines between gaming and gambling

“Let me break the bubble,” Chirag Chopra, the Founder and CEO of New Delhi-based Lucid Labs said. “The Indian game industry is more than Real Money Games, and believe it or not, they are here to stay. No matter what they try to tell you on social media, your beloved games will not be taxed 28 percent; that privilege is reserved for … Real Money Games.”

Video games themselves have long been taxed at 18%, and the government has clarified that the 28% GST on deposits for ‘online gaming’ only applies to the real-money gaming industry. The latter industry has fervently opposed the 28% GST that was slapped on deposits, arguing that users would be discouraged from playing if they had to pay 28% over and above what they were playing games like poker with.

Also Read | Explained | Will 28% GST on online gaming affect its growth?  

“The negative sentiments and social stigma towards games involving monetary wagering are unfairly linked to video games in Indian society, leading to misconceptions about our industry’s products and services,” the letter argued before the government.

It’s not just confusion to the general public that is at stake. “International game corporations, publishers and investors are under the impression that the Indian regulatory system does not differentiate between Video Games and RMG/Fantasy Sports (iGaming) and applies blanket regulations to both industries,” the letter pointed out. “This has resulted in hesitation to invest in Indian video game companies and discouraged potential investments, co-productions, and strategic partnerships.”

Image for representation purpose only.
| Photo Credit: Getty Images/iStockphoto

The real money gaming industry — which runs games where users can stake money for winnings on apps — welcomed the Union Budget’s clarification on Tax Deducted at Source (TDS) for money won on their platforms. These platforms, referred to as “online gaming” by the government, are required to deduct 1% TDS from users when the latter withdraw their winnings and deposits.

Union Finance Minister Nirmala Sitharaman said that the government would be “removing the minimum threshold of ₹10,000 for TDS and clarifying taxability relating to online gaming.” This would allow real money gaming platforms to assess TDS on net earnings over the year instead of on individual transactions. “It is seen that deductors are deducting tax under Section 194 B and 194 BB of the Act by applying the threshold of ₹10,000 per transaction and avoiding tax deduction by splitting a winning into multiple transactions each below ₹10,000,” the government said in its memorandum explaining the Budget. “This is against the intention of legislature,” it emphasised.

‘Ambiguities cleared’

“It’s a progressive step as the government is creating a new section for the online gaming industry. It cements the recognition of online gaming as a distinct technology-driven entertainment sector,” Games24x7 Chief Financial Officer Rahul Tewari said in a statement. “[W]e will wait to get more clarity from the department on the computation mechanism.”

“[T]he government has cleared ambiguities regarding TDS calculation for online gaming and simplifies the process for both companies and users,” Vikash Sureka, the Mobile Premier League fantasy sports platform’s Chief Financial Officer, said in a separate statement.

“Since winnings in online gaming are given in both cash and in kind, it is important to note that even winnings paid in kind are taxable. And the obligation is on the gaming company to ensure that the winner pays the tax before the winning is given to him,” said Sanjay Tolia, tax leader at PwC.