ED Raids Online Gaming Firms, Alleges INR 4,000 Cr Sent Abroad Illegally

The Enforcement Directorate has uncovered a large-scale operation wherein hundreds of online gaming websites and companies were allegedly remitting collections made to foreign countries, in violation of the Foreign Exchange Management Act (FEMA), 1999.

The searches were conducted on Monday (May 22) and Tuesday (May 23) and the targeted companies were those with domiciles outside of India.

“ED has carried out searches under the FEMA, 1999 on 22.5.2023 and 23.5.2023 at 25 premises in Delhi, Gujarat, Maharashtra, Madhya Pradesh & Andhra Pradesh in relation to the investigation being done against foreign registered Online Gaming companies/websites operating in India,” said ED on Twitter on Wednesday (May 24).

The financial law enforcement agency has also seized incriminating documents, devices, INR 19.55 Lakh and $2,695 in cash, also freezing 55 bank accounts.

According to the financial law enforcement agency, the online gaming companies raided were registered in countries like Curacao, Malta and Cyprus. However, all of these companies were linked to bank accounts based in India, opened in the name of proxy persons who had no links with online gaming activity.

The key persons indicted in the case are Ashish Kakkar, Neeraj Bedi, Arjun Ashwinbhai Adhikari, Abhijeet Khot and the persons and entities associated with them. 

ED said that hundreds of such companies were opened by key persons in the name of their employees for layering and sending remittances to the tune of INR 4,000 Cr in the guise of payments for the import of goods and services. 

“The amount collected from the general public through gaming websites is then routed through multiple bank accounts and finally remitted out of India by mis-declaring the purpose of remittances against the import of services/goods.” 

It is important to note that such remittances, originating from the income generated by activities like racing, riding, and other hobbies, are strictly prohibited under FEMA provisions.

Explaining the modus operandi, the ED said that the people indicted in the case were using virtual international mobile numbers to connect over WhatsApp, Telegram and Signal while using pseudonyms. To escape from investigating agencies, these people were said to have been working via remote access apps like Anydesk and TeamViewer.

The move from ED comes as online gaming as an industry has been receiving increasing regulatory recognition from the government. 

Earlier this year, the Finance Bill 2023 introduced two new sections concerning online gaming – 194BA for TDS on winnings from online games for intermediaries and 115BBJ for computation of taxes for those who earn income from winnings.

Further, the Ministry of Finance also clarified guidelines for Tax Deducted at Source (TDS) for online gaming platforms, providing clarity on taxation.

Recent reports also suggested better clarity on games of chance and skill from the government, as the finance ministry is reportedly seeking different GST for both types by categorising them as such.

Under this structure, the games dependent on certain outcomes or are similar to betting or gambling would attract 28% GST. On the other hand, games involving some skill could be taxed at a lower 18%, PTI reported in late April.

This would end the long-standing debate of which games to consider as games of chance or skill; games of chance are considered gambling, and state governments across the country have placed stricter restrictions on online gambling.

However, online gaming platforms have found themselves on the wrong side of the financial law multiple times. In December, the government informed the Parliament that the Central Board of Indirect Taxes and Customs (CBIC) was investigating gaming companies for alleged GST evasion of nearly INR 23,000 Cr.

Update | May 25, 2023, 1:25 PM

The story has been updated with ED’s statement on the matter.

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