In the second part of iGaming Expert’s feature on the emerging gambling sector in India, 4H Agency CEO Ilya Machavariani and expert Divya Negi explore how the state of Karnataka is paving a new path for the regulation of digital gambling in the country.
After years of legal uncertainty and fragmented oversight, Karnataka has become a pioneer in establishing India’s first workable online gaming framework. Its structured, skill-based approach not only addresses regulatory gaps but also creates a model that respects intellectual property rights – one that other states can follow, particularly in the absence of unified federal legislation.
Regulatory ambitions position Karnataka to become the biggest gambling story to close out the 2020s, as it begins the legalisation of a market where an estimated $100 billion in annual payment transactions currently flow through unlicensed operators.
Karnataka’s regulatory trajectory reflects India’s broader transformation in gambling governance. Traditionally associated with a prohibitionist stance, the state has begun to shift toward formal regulations of real-money gaming, specifically in the online skill-based segment. This change follows a series of legal and political recalibrations over the past four years.
The legal foundation for gambling prohibition in Karnataka lies in the Karnataka Police Act, 1963. It outlaws common gaming houses and public gambling, irrespective of monetary stakes. The law permits arrests without a warrant and mandates the seizure or destruction of gambling instruments. Penalties range from one month to one year of imprisonment and fines between ₹500 and ₹1,000.
In 2021, Karnataka passed a controversial amendment to the Act that criminalised all online games played for stakes, including games of skill, and making it one of the strictest jurisdictions in India for gaming offences. The law imposed non-bailable offences and enhanced custodial penalties for operators and users alike. It explicitly included digital platforms, virtual currencies, and electronic transfers within its scope, and extended prohibition even to skill-based formats, contrary to Supreme Court precedent.
The passage of the amendment triggered an immediate backlash from industry associations and technology lobby groups. Bodies such as the AIGF, IndiaTech, and the CAIT warned that the law failed to distinguish between games of skill and chance and threatened Karnataka’s standing as a start-up and technology hub. Despite assurances from then authorities that games predominantly based on skill would not be affected, the legislation did not provide any formal exemptions or definitions to that effect.
The law’s implementation had immediate market consequences. Platforms like MPL and BalleBaazi geo-blocked users in Karnataka, while others faced legal scrutiny. Observers widely anticipated legal challenges, and in 2022, the Karnataka High Court struck down the amendment in All India Gaming Federation v. State of Karnataka, declaring it unconstitutional for failing to respect the legal protection afforded to skill gaming under the right to trade and profession.
Parallel to this, Karnataka’s judiciary played a critical role in shaping the policy landscape on gambling taxation.
In June 2021, the Karnataka High Court ruled in favour of Bangalore and Mysore race clubs, holding that GST should apply only to totalizator commissions and not to the full value of pooled wagers. This judgment reinforced the legal separation between service facilitation and betting and had broader implications for online platforms operating on a commission model.
In 2023, the Karnataka High Court delivered another major ruling in favor of Gameskraft Technologies, rejecting the classification of online skill games as gambling for GST purposes. The court quashed a ₹21,000 crore GST demand issued by the Directorate General of GST Intelligence, stating that Gameskraft merely facilitated skill games and was not liable to pay tax on full transaction value.
This decision marked a significant legal win for the industry and underscored Karnataka’s role as a judicial forum capable of counterbalancing regulatory overreach.
Despite these developments, enforcement pressures remained. In 2023 and 2024, Karnataka police intermittently targeted unlicensed apps, while political messaging continued to emphasise concerns about user harm, fraud, and addictive behavior. The government’s tone remained cautious, avoiding sweeping endorsements of legalisation while recognising the constitutional protections around skill games.
Policy signals began to shift as early as 2020. During the pandemic, the state gave in-principal approval for the Bangalore Turf Club to operate online betting on horseracing, citing the financial toll on the sport. Around the same time, state ministers publicly floated the idea of conducting a comprehensive review of online gambling; although initial public interpretation of these statements was mixed, oscillating between hopes of regulation and fears of a crackdown.
A decisive turn occurred in early 2025, when the Karnataka government publicly announced its intent to move away from blanket prohibition and instead draft a structured regulatory law for online skill gaming. Consultations began with national industry associations, and policy drafts began to take shape with provisions for licensing, age verification, and a whitelist mechanism.
This repositioning marks more than just a legislative update – it reflects a broader institutional realignment. Karnataka uses the long-established distinction between skill and chance not only to defend legal gaming formats but to construct an operational model that aligns with constitutional guarantees, market realities, and state-level enforcement capabilities. By doing so, the state is laying the legal and conceptual groundwork for a regulated and transparent gaming economy.
By mid-2025, Karnataka has transitioned from legislative intent to practical implementation. The reform process now centers on building the institutional capacity and administrative mechanisms necessary for a functioning regulatory regime.
The state is currently developing a comprehensive framework for online real-money gaming, focused exclusively on legally defined games of skill. Key elements under design include:
The draft policy is expected by late 2025, following public and stakeholder consultations. Notably, the proposed framework includes platform oversight, data protection measures, and reporting obligations, which is a significant institutional advance in the Indian gaming landscape.
While building this long-term regime, Karnataka has simultaneously intensified enforcement against illegal actors. In recent months, authorities invoked the Goonda Act to detain repeat offenders running unlicensed gambling operations, including those using cryptocurrencies and digital wallets. This application of preventive detention laws, though exceptional, highlights the urgency with which Karnataka is treating unregulated platforms.
Administrative coordination across the IT, Law, and Home departments has elevated gaming regulations to a strategic governance priority. However, this process has not been without disruption (e.g., the reassignment of IPS officer Sandeep Patil, who had been leading the state’s online gaming initiative, raised concerns over continuity). Nonetheless, policymaking continues under the direction of core state agencies.
What distinguishes Karnataka’s model is its procedural discipline. By engaging national industry bodies in the drafting phase, the state is building operational insight into licensing standards, platform accountability, and risk-based supervision. This approach contrasts with earlier efforts in other states that either collapsed under judicial scrutiny or lacked policy clarity.
Karnataka’s trajectory has positioned it not only as a reformer, but as a national prototype for gaming regulations. In a fragmented legal environment where the central government has stalled on uniform legislation, Karnataka has moved ahead – not through court orders or crisis, but by deliberate policy choice.
The ripple effect is already visible. In 2025, states such as Maharashtra, Haryana, Andhra Pradesh, Uttarakhand, and Uttar Pradesh began drafting or announcing regulatory frameworks for online skill gaming. Each of these jurisdictions is pursuing a path informed, at least in part, by Karnataka’s willingness to act. It has demonstrated that legal clarity and economic pragmatism are not mutually exclusive, and that real-money gaming can be responsibly integrated into a digital economy.
Several structural factors give Karnataka a comparative advantage:
Rather than allowing these factors to support a shadow economy, Karnataka is working to formalize them. The whitelist system, once operational, will separate legitimate operators from illicit ones, allowing regulators to focus enforcement efforts and enabling compliant businesses to operate with legal certainty.
Karnataka’s strategy contrasts sharply with federal inaction. The central government has withdrawn recognition of industry self-regulators, failed to pass unifying legislation, and imposed a flat 28% GST on deposits that threatens to bankrupt compliant operators while doing little to deter illegal ones.
In this policy vacuum, Karnataka has emerged as a regulatory anchor. Its attempt to combine skill-based gaming recognition, user protection protocols, and institutional supervision is creating India’s first coherent digital gambling regime.
Karnataka’s reform is more than a local experiment – it is a structural realignment of how Indian states can approach online gambling. By embedding regulation into law, policy, and administration, the state has created a working model others are beginning to adopt. Its transition, from blanket bans to targeted, skill-based regulation, has already influenced legislative moves in other India’s states.
Internally, Karnataka is aligning its digital infrastructure, tourism potential, and active player base with enforcement tools and institutional capacity. This comes at a time when India lacks a unified federal policy, and offshore operators continue to exploit legal gaps. Karnataka’s approach offers legal clarity, player protection, and tax potential, without disregarding constitutional protections for skill gaming.
By starting with skill games, the state is also reshaping how gambling is viewed politically and socially. If fully implemented, Karnataka’s model could serve as a practical blueprint for coherent and accountable regulation in India’s fragmented gambling landscape.
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