GST on Crypto: Is It a Currency or Commodity?

If you’ve ever tried figuring out how India taxes cryptocurrency, I salute you. You’ve entered a maze with no map, no exit sign, and a whole lot of financial jargon disguised as legal policy. I found myself in this same crypto conundrum, staring at the Finance Act, 2022 like it was a riddle designed to humble every curious law student. GST and crypto together? That’s the ultimate boss level. And unfortunately, it’s also our reality.

To start with, let’s set the mood: In 2022, India rolled out a 30% tax on income from Virtual Digital Assets (VDAs) along with a 1% TDS. That move alone made crypto traders feel like they’d been taxed for even dreaming of profits. But while income tax laws were loud and clear (and kind of rude), GST took the quiet-and-confusing route — the kind of ambiguity that keeps startups and accountants awake at night.

Here’s where things get funny. Or tragic. Or both. Under the Goods and Services Tax Act, 2017, “goods” are movable property, except money and securities. “Services” are everything else. Crypto, however, doesn’t really fit in anywhere. It’s not officially money — the Reserve Bank of India made sure of that with its dramatic “crypto-is-not-currency” stance. It’s not a security either, unless we’re stretching definitions like we stretch our deadlines. So we’re stuck with the mystery: is crypto a good, a service, or a cosmic joke on tax professionals?

Let’s take a break from theory and look at what actually happened. The WazirX episode in 2021 should’ve come with a popcorn bucket. India’s largest crypto exchange got slapped with a Rs. 49.2 crore GST evasion notice. Their mistake? They paid GST on their trading commission, but the authorities wanted them to pay GST on the entire value of the crypto exchanged. That’s like charging you GST on the total cost of a mall when all you bought was a single t-shirt. It exposed a major fault line: no one really knows what the scope of GST is when it comes to digital assets.

The Finance Act at least tried to classify things — sort of. Section 115BBH introduced that 30% tax on crypto income, and Section 194S brought in a 1% TDS on every transaction. But GST? Still silent. Still ambiguous. Still the ghost in India’s tax machine. While exchanges continue to charge 18% GST on their service fees, it’s unclear if the actual value of the crypto being bought or sold should be taxed too. And if so, who’s responsible — the buyer, seller, or platform? It’s like playing pass-the-parcel, but with legal liability.

Now, imagine you’re a startup trying to do something exciting in the crypto space. Maybe you’re building a blockchain-based payment solution or creating digital art NFTs. Good luck, because you’re now walking a legal tightrope. The risk of retrospective taxation, random notices, and inconsistent interpretations is very real. This isn’t just a minor inconvenience. It’s enough to drive talent and investment out of India and into crypto-friendly countries like Singapore or the UAE, where the rules are at least clearer, even if not simpler.

Globally, the picture is mixed but more readable. The UK doesn’t charge VAT on crypto trades. Singapore doesn’t either — and they treat crypto like property, which makes it easier for businesses to plan and comply. Australia does charge GST in some cases, but it’s far more specific. In comparison, India’s approach feels like the government is still deciding whether crypto is a rebellious teenager, a misunderstood genius, or a scam with a software update.

From a policy lens, this lack of clarity is just bad economics. Over-taxing or triple-taxing (income tax, TDS, GST) the same asset makes people either look for loopholes or just quit the ecosystem altogether. A reasonable GST rate — maybe 5% on the service component — would still allow revenue generation without crippling the industry. But the current silence? That’s costing us more than tax revenue. It’s costing us innovation.

There’s also a larger philosophical question here: If the law can’t keep up with technology, who’s at fault? Do we blame crypto for being new, or the legal system for refusing to update its definitions? A modern economy can’t treat digital assets using frameworks designed for rice and tractors. We need new legal language — and fast. Because if India wants to be a global tech hub, it can’t keep regulating tomorrow’s markets with yesterday’s ideas.

So where do we go from here? First, the GST Council needs to stop dodging the issue. Create a clear classification for crypto — whether as goods, services, or a new bracket altogether. Then, harmonise GST with the income tax provisions brought in by the Finance Act. If the Income Tax Department calls it a “Virtual Digital Asset,” GST can’t call it “none of our business.” Consistency isn’t just good law — it’s common sense.

Second, issue circulars or FAQs like other countries do. Even a basic explainer would help businesses and users understand what’s expected of them. Third, provide a grace period or safe harbour for startups — a time-bound protection from penalties if they declare and pay taxes based on good-faith interpretation. That would signal that the government wants to build the crypto ecosystem, not just tax it into oblivion.

In the end, India’s crypto-GST confusion isn’t just a tax issue. It’s a trust issue. People want to comply — they just want to know what they’re complying with. Until we get that clarity, every crypto trade will come with a side of fear, a sprinkle of confusion, and perhaps, a silent prayer to the tax gods.

In conclusion, cryptocurrency’s status in India under GST law is like that kid in school who doesn’t fit in not sporty enough for the jocks, dumb for the nerds, and way too chaotic for the student council. And while the rest of the world is figuring out how to seat this kid at the table, India is still debating whether he should be invited to the school at all. Until clarity arrives, we’re all stuck wondering whether our Bitcoin comes with a side of GST, or a side of existential dread.

Author:– Swara Dalvi, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.

References

1. Goods and Services Tax Act, 2017, Sections 2(52), 2(102)
2. Finance Act, 2022 – Sections 115BBH and 194S
3. Internet and Mobile Association of India v. RBI, (2020) 10 SCC 274
4. CBIC Press Release on Crypto Taxation, 2022
5. WazirX GST Notice Reported by Business Standard, Dec 2021
6. International practices: HMRC Guidance (UK), IRAS (Singapore), ATO (Australia)