Cryptocurrency Taxable under GST

Cryptocurrency Taxable under GST

For FY 2026-27, cryptocurrency in India faces a split tax regime: income tax is settled — 30% flat under section 115BBH — but GST classification remains formally unresolved. The practical consensus, confirmed by how major exchanges actually file, is that GST at 18% applies to the service fees charged by exchanges, custody providers, and OTC desks, while the underlying crypto transfer itself sits outside the GST net pending a CBIC notification. That position is defensible, widely adopted, and mirrors how stockbroking services are taxed. This post explains the legal basis, the grey zones, the worked numbers, and every compliance step you need for FY 2026-27.

India's Legal Framework for Crypto: What the Law Actually Says

Cryptocurrency has no single governing statute in India. The proposed Cryptocurrency and Regulation of Official Digital Currency Bill has been under consultation since 2021 and has not been tabled in Parliament as of May 2026. What exists is a patchwork of provisions you must read together.

Income Tax Act, 1961 — sections 115BBH and 194S were introduced by the Finance Act 2022, effective from FY 2022-23. A Virtual Digital Asset (VDA) is defined in section 2(47A) to include any code, number, or token generated through cryptographic means, all cryptocurrency, and non-fungible tokens (NFTs), with power to the Central Government to exclude specific assets by notification. This definition captures Bitcoin, Ethereum, USDT, and most tokens traded on Indian and offshore exchanges.

CGST Act, 2017 contains no dedicated provision for VDAs. The classification question turns entirely on whether a specific transaction constitutes a supply of "goods," a supply of "services," a transfer of "money," or a transaction listed in Schedule III — which is treated as neither a supply of goods nor a supply of services for GST purposes.

PMLA 2002 (as amended, March 2023) brought crypto exchanges and certain intermediaries within the definition of "Reporting Entities," requiring mandatory KYC and suspicious transaction reporting to FIU-IND. This has no direct GST consequence, but it means exchanges already hold the transaction records a GST audit would need.

Crypto is not legal tender, and as of May 2026 it has not been classified as a security under SEBI regulations. The RBI's digital rupee (e-₹) is a separate Central Bank Digital Currency and is irrelevant to private crypto GST analysis.

The GST Classification Puzzle: Goods, Service, Money, or Something Else?

The outcome turns on which CGST Act category a crypto transaction falls into. Here is how each category maps:

If cryptocurrency is "goods"

Section 2(52) of the CGST Act defines goods as "every kind of movable property other than money and securities." If crypto is goods, every crypto-to-fiat and crypto-to-crypto transaction is a taxable supply, and GST is leviable on the full transaction value. At 18% on a Rs. 10 lakh trade, that is Rs. 1,80,000 in GST per trade — a commercially unworkable position that would instantly price Indian exchanges out of global competition.

If cryptocurrency is "services"

Section 2(102) defines services as "anything other than goods, money and securities." If the crypto transfer is itself a service, the same 18% problem applies to the full transaction value. Again, commercially unworkable.

If cryptocurrency is "money"

Section 2(75) defines money as Indian legal tender, foreign currency, or similar payment instruments — but explicitly excludes currency held for numismatic value. Crypto is not legal tender, so it falls outside the statutory definition as written. The economic function of Bitcoin as a medium of exchange creates a policy argument for money-like treatment, but the law does not support this categorisation without a specific amendment or CBIC notification.

If cryptocurrency qualifies as an "actionable claim"

Schedule III, entry 6 of the CGST Act treats "actionable claims, other than lottery, betting and gambling" as neither goods nor services — meaning no GST on the underlying transfer. If crypto is characterised as an actionable claim enforceable under law, this entry would exempt the exchange. This argument is legally interesting but has not been tested or confirmed by any court or authority.

If cryptocurrency were treated as a "security"

Securities are excluded from both goods and services, and their transfer does not attract GST — which is why stockbroking is taxed only on the brokerage fee, not on the value of shares traded. Crypto is not notified as a security under the Securities Contracts (Regulation) Act, 1956, so this route is currently unavailable.

Where this leaves you for FY 2026-27: No CBIC notification has resolved the classification. The defensible, industry-standard position is to treat the underlying crypto exchange as a non-GST transaction and apply GST at 18% only on identifiable service components — fees, commissions, and charges. This is the position followed by major FIU-IND-registered exchanges.

How Crypto Exchanges Apply GST Today — and Why

Indian exchanges register under the CGST Act and file regular returns. The taxable supply is the service they render to the user, not the crypto asset itself. In practice, the following components attract 18% GST:

• Trading commission / platform fee: The percentage fee on each buy or sell order
• Fiat withdrawal fees for bank transfers out of the exchange
• Custody and wallet management fees charged to institutional clients
• Listing fees charged to blockchain projects for token listings
• Margin and leverage fees on derivative products where available

The exchange issues a tax invoice for each fee, showing the base amount and GST separately. It then files:

• GSTR-1: Outward supplies — monthly if aggregate turnover exceeds Rs. 5 crore, otherwise quarterly under the QRMP scheme
• GSTR-3B: Monthly summary return with self-assessed tax payment
• GSTR-9 / GSTR-9C: Annual return and reconciliation statement, as applicable

Worked Example: GST on Exchange Fees at Different Trading Scales

Small retail trader — Rs. 5 lakh monthly volume, 0.2% fee:

Active trader — Rs. 3 crore monthly volume, 0.2% fee:

At the active-trader level, if you operate through a proprietary firm or company registered under GST, the Rs. 1,29,600 paid annually as GST on exchange fees is fully creditable as Input Tax Credit (ITC) against your GST output liability — provided you make taxable outward supplies yourself. An individual investor who is not GST-registered has no ITC recourse; the GST on fees is a sunk cost.

Mining and Staking: The GST Grey Zone

These are the two activities where GST exposure is most genuinely uncertain.

Proof-of-Work Mining

A miner deploys computational resources, expends electricity, and receives freshly minted crypto from the protocol as a reward. For a supply to exist under section 7 of the CGST Act, you need a supplier, an identifiable recipient, consideration, and a supply of goods or services. The blockchain protocol has no legal personality. There is no contractual consideration paid by a counterparty — the reward is a protocol-determined emission. On this reasoning, mining does not constitute a "supply" under the CGST Act, and no GST liability arises on receipt of mining rewards. Industry practice and most professional opinions align here.

When the miner sells the mined crypto, section 115BBH applies at 30% on the gain. The cost of acquisition of mined crypto is the fair market value on the date of receipt, as clarified for income-tax purposes.

Proof-of-Stake / Staking

The same "no identifiable recipient or contractual consideration" logic applies to staking rewards. You lock tokens in a validator or staking pool; the protocol rewards you with additional tokens. Conservative position: no GST on receipt of staking rewards.

Important caveat: If you operate a staking-as-a-service business — staking on behalf of clients and charging a management fee — that management fee is a taxable service at 18% GST, regardless of the status of the underlying staking reward.

DeFi: Liquidity Provision and Yield Farming

Providing liquidity to a decentralised exchange protocol or lending protocol generates rewards. The same "no identifiable counterparty" argument applies. However, if you use a centralised yield aggregator that charges a platform fee, that fee is a taxable service.

P2P Trades, OTC Desks, and Where GST Applies

Direct Wallet-to-Wallet (P2P) Trades

Two private individuals exchanging crypto directly — no exchange intermediary — generate no GST liability for either party. There is no supply of a taxable service. Income-tax obligations under section 115BBH remain fully applicable to the seller.

OTC Desks

An OTC desk matches large buyers and sellers, earning a spread or flat fee. The facilitation fee is a taxable service at 18% GST. The OTC desk must register under GST if its annual fee turnover exceeds Rs. 20 lakh (Rs. 10 lakh in special category states listed in Article 279A of the Constitution). It must issue tax invoices and file GSTR-1 and GSTR-3B. The underlying crypto value transferred between counterparties is outside the GST net.

Import of Services from Foreign Exchanges and DeFi Protocols

If you pay a fee to a foreign exchange or non-resident DeFi protocol that qualifies as a "supply of service" received in India, Reverse Charge Mechanism (RCM) under section 9(3) of the CGST Act may apply. The Indian recipient becomes liable to pay GST in the government's hands. This is a commonly overlooked exposure — active DeFi users paying protocol fees to non-resident operators should assess this carefully.

Section 194S TDS: The Income-Tax Obligation That Shapes Your GST Records

Section 194S requires the buyer of a VDA to deduct TDS at 1% of the consideration at the time of credit or payment, whichever is earlier. For FY 2026-27:

• Rs. 50,000 per financial year threshold: Specified persons — individuals or HUFs whose business turnover in the preceding year was below Rs. 1 crore, or professional receipts below Rs. 50 lakh
• Rs. 10,000 per financial year threshold: All other payers — companies, firms, non-specified individuals

Worked Example: TDS and GST Together for a Corporate Buyer

A startup treasury buys Rs. 8 lakh of Ethereum from an OTC desk in Q1 FY 2026-27.

The Rs. 8,000 TDS must be deposited by the 7th of the following month and reported in Form 26Q (or Form 26QE for individuals making VDA purchases). The OTC desk collects Form 16A as evidence of TDS deducted.

Why this matters for GST compliance: The TDS trail visible in Form 26AS and the Annual Information Statement (AIS / Tax Information Summary on the income-tax portal at incometax.gov.in) gives the income-tax department a near-complete picture of your crypto purchase activity. If your GST filings — where applicable — are inconsistent with this trail, you face reconciliation risk in both forums simultaneously. A single, transaction-wise register capturing trade date, value, cost of acquisition, TDS deducted, and GST paid on fees will support your income-tax Schedule VDA filing and any GST audit.

Pitfalls to Avoid: Common GST Compliance Mistakes in Crypto

These errors appear most frequently in practice:

1. Applying 18% GST to the full trade value instead of the service fee. If you buy Rs. 10 lakh of Bitcoin and the fee is Rs. 2,000, GST is Rs. 360 — not Rs. 1,80,000. Applying GST to the transaction value creates a massive over-declaration, a phantom refund claim, and an audit trigger.

1. Failing to register for GST when facilitation fee turnover crosses Rs. 20 lakh. An OTC desk earning Rs. 25 lakh in annual fees must register. Non-registration attracts interest at 18% per annum on unpaid tax plus a penalty of 10% of tax (minimum Rs. 10,000) under section 122 of the CGST Act.

1. Conflating TDS under 194S with GST. TDS goes to CBDT via Challan 281 and appears in Form 26AS. GST is paid via the GST portal and reported in GSTR-3B. These are separate compliance tracks. Claiming TDS amounts as GST credits — or vice versa — creates irreconcilable mismatches.

1. Not issuing tax invoices for custody or wallet service fees. Every taxable supply requires a valid tax invoice under section 31 of the CGST Act. Missing invoices deny ITC to your GST-registered clients and create an audit trail gap on your side.

1. Ignoring RCM on fees paid to foreign exchanges or non-resident DeFi protocols. Many active traders pay sizeable fees to offshore platforms without realising that RCM may apply. There is no threshold exemption for RCM on import of services from non-residents.

1. Treating mining or staking income as entirely tax-exempt. GST may not apply on receipt, but income tax does — at slab rates under section 56(2), not the 30% VDA rate. Omitting this income from your ITR creates re-assessment risk under section 148, particularly now that AIS aggregates data from crypto exchanges reporting under PMLA.

1. Not tracking the cost of acquisition for mined or staked crypto. When you eventually sell, section 115BBH taxes the gain, and the allowable deduction is limited to cost of acquisition. If you have no records of the fair market value on the date of receipt, you lose the ability to set off your cost — resulting in tax on the full sale proceeds rather than just the gain.

What the International Experience Signals for India

The EU's Court of Justice ruled in Hedqvist (2015) that Bitcoin-to-fiat exchange is a supply of services exempt from VAT, treating crypto as analogous to currency for VAT purposes. The UK adopted a substantially similar position. Singapore clarified in 2020 that using cryptocurrency as payment for goods or services falls outside the scope of GST, while the exchange's service fee retains full GST applicability.

The common thread across every mature jurisdiction that has formally resolved this question: exempt the underlying crypto exchange; tax the intermediary's service fee. India's current practice — arrived at pragmatically rather than by notification — already mirrors this endpoint precisely.

The G20 crypto regulatory framework, agreed under India's 2023 G20 presidency, encourages member states to align definitions and avoid double taxation of crypto transactions. India's legislative trajectory, whenever the Cryptocurrency and Regulation Bill is eventually tabled, is expected to codify this exemption in Schedule III of the CGST Act — converting the current practice-based position into a statutory one.

The practical implication: The conservative compliance position you adopt today is also the forward-compatible position. Build your records and return-filing architecture around service fees at 18% GST with underlying trades outside the net — so you will not need to restructure when formal classification arrives.

Key Takeaways

• GST at 18% applies to the service fee charged by crypto exchanges, OTC desks, custodians, and wallet providers — not to the underlying value of crypto transferred, which remains outside the GST net pending CBIC classification.
• Section 115BBH imposes 30% income tax on gains from VDA transfer in FY 2026-27 (AY 2027-28); losses from VDA cannot be set off against any other head of income or carried forward.
• Section 194S TDS at 1% applies on the buyer above Rs. 50,000 per year (specified persons) or Rs. 10,000 per year (others); deposit by the 7th of the following month via Challan 281 and report in Form 26Q / 26QE.
• Mining and staking rewards do not attract GST on receipt (no identifiable legal recipient of a "supply"), but are taxable as income; GST applies only if you operate staking or mining as a service to paying clients.
• OTC desks and custodians must register under GST once service fee turnover exceeds Rs. 20 lakh and must issue tax invoices and file GSTR-1 and GSTR-3B — even if the underlying crypto value in each trade is far larger.
• RCM on import of services from foreign exchanges or non-resident DeFi protocols is a commonly missed liability; assess this if you pay fees to any non-resident platform.
• Maintain one consolidated transaction register — trade date, value, cost of acquisition, TDS deducted, and GST paid on fees — to reconcile your income-tax Schedule VDA filing, Form 26AS/AIS data, and any GST records in a single audit-ready document.