GST on Crypto-to-Crypto Swaps: Is It Barter Under Schedule I, or Does Section 7 Even Apply to Decentralized Exchanges?

Introduction

The law relating to GST on cryptocurrency in India occupies a space that is simultaneously over-discussed and under-resolved. As decentralized finance (DeFi) expands, a recurring and commercially significant question arises: when two parties execute a crypto-to-crypto swap — for instance, Ether for Polygon — on a decentralized exchange (DEX), does GST apply? If so, under which statutory provision of the CGST framework, and how should such a transaction be valued?

Answering this question requires examining multiple layers of the Central Goods and Services Tax Act, 2017 (CGST Act), particularly Section 7, which defines the scope of supply, and Schedule I, which lists activities treated as supply even without consideration. At the same time, it raises a fundamental threshold issue for GST on cryptocurrency in India: does the very structure of a decentralized exchange (DEX) — with no identifiable supplier, no platform fee, and no centralized entity — fall within the charging provisions of the CGST framework? This article explores these questions with reference to statutory text, relevant case law, and the regulatory gaps currently shaping the taxation of Virtual Digital Assets India transactions and crypto-to-crypto swaps.

How Virtual Digital Assets Are Classified Under Indian Law

Before understanding how GST applies (or fails to apply) to crypto swaps, it is essential to understand what cryptocurrencies are in the eyes of Indian law. The CGST Act, 2017 does not independently define cryptocurrencies or virtual digital assets (VDAs). The definition that practitioners and tax authorities borrow from is the one introduced by the Finance Act, 2022, which inserted Section 2(47A) into the Income Tax Act, 1961 [1]. Under that provision, a virtual digital asset means “any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically.”

This definition expressly excludes Indian currency and foreign currency. That exclusion is critical because it forecloses the argument that crypto assets should be treated the same way as money for GST purposes. Under Section 2(75) of the CGST Act, “money” is defined as Indian legal tender, foreign currency, cheques, promissory notes, pay orders, demand drafts, letters of credit, bills of exchange, drafts, electronic remittances, or any other instrument recognised by the Reserve Bank of India for settling obligations — a category that VDAs clearly do not fall into. Equally, VDAs do not meet the definition of “securities” under Section 2(101) of the CGST Act, which covers government securities, bonds, debentures, shares, and similar instruments [2].

The consequence of these exclusions is that VDAs fall under the residual category of “goods” as defined in Section 2(52) of the CGST Act: “every kind of movable property other than money and securities.” This classification, while arrived at by elimination rather than affirmative design, is the dominant position among practitioners and, to the extent there is any official indication, appears to be the government’s working assumption as well.

Section 7 of the CGST Act and What Constitutes a Supply

Section 7 of the CGST Act, 2017 is the cornerstone of the entire GST charging structure. It defines “supply” in terms broad enough to cover virtually every commercial transaction, but with specific exclusions that matter enormously in the crypto context [3].

Section 7(1)(a) reads verbatim: “all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.”

This provision has four cumulative requirements: there must be a supply of goods or services; it must be made for a consideration; it must be by a person; and it must be in the course or furtherance of business. Each of these requirements has to be independently satisfied for GST liability to arise. In the context of GST on Crypto-to-Crypto Swaps, a standard swap on a centralized exchange meets all four conditions — the exchange provides a service, charges a fee as consideration, is a legal person, and is certainly in the business of operating an exchange. This is why centralized crypto exchanges have been classified as Online Service Providers under Section 2(102) of the CGST Act, with 18% GST applicable on their trading fees, withdrawal fees, and other platform charges.[4]

But the analysis shifts substantially when the platform is a decentralized exchange.

The Barter Question: GST on Crypto-to-Crypto Swaps Under Schedule I

Section 7(1)(a) explicitly lists “barter” and “exchange” as forms of supply. This is a significant departure from the pre-GST regime. Under the old state VAT laws, tax was levied on “sale,” which required a transfer of goods for cash, deferred payment, or “other valuable consideration.” The phrase “other valuable consideration” was historically interpreted, using the principle of ejusdem generis, to be in the nature of money — meaning that a direct exchange of goods for goods was not a “sale” and therefore escaped VAT. The courts endorsed this position clearly in Sales Tax Commissioner v. Ram Kumar Agarwal [(1967) 19 STC 400 All], where the Allahabad High Court held that an exchange of gold bullions for ornaments did not constitute a “sale” within the meaning of Section 2(h) of the Sale of Goods Act, 1930 [5].

GST changed this entirely. By expressly including “barter” and “exchange” within the definition of supply under Section 7(1)(a), Parliament made it clear that a crypto-for-crypto swap — where one VDA is handed over in exchange for another — would constitute a supply. Both legs of the transaction constitute a supply simultaneously: the party transferring Ether supplies Ether and receives Polygon as consideration, while the counterparty does the reverse. In a barter, each supply is the consideration for the other.

Schedule I of the CGST Act adds a further dimension. It lists activities that are treated as supplies even when made without consideration — including permanent transfer of business assets on which input tax credit has been claimed, and supplies between related persons or distinct persons in the course of business. Where crypto-to-crypto swaps occur between related parties or as part of a business arrangement, Schedule I potentially brings such transactions within the GST net even in the absence of a separately identified monetary consideration.

However, the barter characterization raises a valuation problem that current GST law is not equipped to handle cleanly. When Ether is swapped for Polygon, what is the “transaction value” under Section 15 of the CGST Act? The default rule under Section 15 is that GST is levied on the price actually paid or payable for the supply, but where the consideration is not in money — as in a barter — Rule 27 of the CGST Rules, 2017 provides that the value shall be the open market value of the supply. For crypto assets, “open market value” at any given moment is contested, varies across platforms, and is nearly impossible to pinpoint in real-time DEX transactions that execute via automated smart contracts.

The Decentralized Exchange Problem: Does Section 7 Even Have a Subject?

A DEX operates through smart contracts on a public blockchain. There is no company sitting in the middle. There is no order book maintained by an intermediary. There is no KYC entity collecting fees. Liquidity providers contribute tokens to a pool and receive protocol-generated fees algorithmically. Two users swapping tokens interact with code, not with a person or a legal entity.

This raises a question that Indian GST law has not yet squarely addressed: who is the “taxable person” under Section 2(107) of the CGST Act? A taxable person is one who is registered or liable to be registered under Section 22 or Section 24. Registration liability arises where a person makes taxable supplies and crosses the threshold turnover. Where the “exchange” is effectuated by a smart contract with no legal personality, there is no person to register, no consideration flowing to an identifiable supplier, and potentially no “supply in the course or furtherance of business” in the GST sense.

As Forvis Mazars noted in its 2025 analysis, “in peer-to-peer or decentralised transactions, the absence of a standardised or benchmark price complicates GST computation,” and “blockchain transactions are inherently borderless,” making the place of supply determination under Sections 10–13 of the CGST Act nearly impractical [6]. GST is a destination-based tax, but when neither the supplier nor the recipient can be jurisdictionally located with any reliability — because blockchain nodes, smart contracts, and user wallets may all be in different countries — the entire framework struggles to find its footing.

Even for centralized exchanges, the jurisdictional question has bite. Where a crypto exchange is located outside India but provides services to Indian users, the place of supply is the location of the service recipient, meaning India. In such cases, the Indian user may be liable to pay GST under the reverse charge mechanism. But this assumes there is an identifiable service being provided by an identifiable foreign entity. On a DEX, neither is true. Agrud Partners, in its April 2025 analysis of India’s approach to DEX regulation, confirmed that decentralized platforms “struggle to identify their customers’ true identities, which regulators often see as unacceptable,” and that India’s regulatory framework for DEXs remains fundamentally underdeveloped [7]. There is no government notification, advance ruling, circular, or CBIC FAQ that directly addresses the GST treatment of swaps on a DEX.

The Internet and Mobile Association of India v. RBI Judgment and Its Relevance

The landmark Supreme Court judgment in Internet and Mobile Association of India v. Reserve Bank of India [2020 SCC Online SC 275] is not a GST case, but it is foundational to understanding the legal status of cryptocurrency in India and by extension its taxability [8]. In this decision, delivered on 4 March 2020 by a bench comprising Justices Rohinton Fali Nariman, Aniruddha Bose, and V. Ramasubramanian, the Court struck down the RBI’s circular dated 6 April 2018, which had directed all RBI-regulated entities to stop providing services to individuals or entities dealing in virtual currencies.

The Court held that while the RBI possessed broad powers under the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, and the Payment and Settlement Systems Act, 2007, the blanket prohibition imposed by the circular was disproportionate to the stated objective. The Court observed that RBI had not demonstrated that any of its regulated entities had suffered any loss or adverse effect on account of their interface with virtual currency exchanges. The restriction therefore failed the proportionality test and was set aside.

What is significant for GST purposes is the Court’s treatment of the nature of virtual currencies. The Court accepted that cryptocurrencies are not legal tender, not money in the legal sense, and not securities — but can be traded as commodities. This reasoning, arrived at in a constitutional challenge rather than a tax proceeding, nonetheless reinforces the “goods” classification that forms the basis for applying GST to VDA transactions. If crypto is a tradable commodity, exchanges of crypto for crypto are exchanges of goods — which is squarely a supply under Section 7(1)(a) of the CGST Act.

The Finance Act, 2022 Framework and Its Silence on GST

The Finance Act, 2022 transformed the income tax treatment of virtual digital assets decisively. Section 115BBH of the Income Tax Act imposes a flat 30% tax on income arising from the transfer of any VDA, with no deduction allowed other than the cost of acquisition. Section 194S mandates TDS at 1% on every transfer of a VDA above the specified threshold [1]. These provisions apply whether the transfer involves fiat currency or another VDA — so a crypto-to-crypto swap triggers both the 30% tax and the 1% TDS on the income tax side.

The Finance Act, 2022, however, did not amend the CGST Act to address cryptocurrency. It introduced the VDA definition into the Income Tax Act and left the GST framework untouched. This legislative silence creates an asymmetry: the income tax law expressly treats crypto-to-crypto swaps as taxable transfers, but the GST law says nothing specific. Practitioners are left to apply general GST principles to a fact pattern that those principles were not designed to address.

It was only in July 2025 that the GST Council clarified that service fees charged by cryptocurrency platforms are subject to 18% GST under Notification No. 11/2017–Central Tax (Rate) dated 28 June 2017, Entry 35, covering “other services not elsewhere classified.” This brought platform fees squarely within the GST net — but said nothing about the underlying crypto assets themselves, and nothing at all about DEX transactions [4].

The Valuation Vacuum and the HSN Classification Problem

In the absence of a dedicated HSN code for crypto assets, practitioners have defaulted to HSN Code 960899 — “other miscellaneous articles” — which attracts a GST rate of 18% [2]. This classification is a workaround, not a legal determination. The GST Council has not officially designated any HSN code for VDAs, and the use of 960899 is based on the catch-all nature of that category rather than any substantive analysis of what a VDA actually is.

For crypto-to-crypto swaps specifically, the valuation problem is acute. Both parties are simultaneously supplier and recipient. The “open market value” of a token at the moment of an atomic swap on a DEX — which executes programmatically through a smart contract in a fraction of a second — is not a stable or verifiable number. Different DEX aggregators will quote different prices. Slippage means the execution price may differ from the quoted price. Without a clear valuation methodology built into the GST rules, any GST liability on such swaps is computationally indeterminate.

India’s approach contrasts with several other jurisdictions. The European Union exempts crypto used for payment from VAT but taxes related exchange services. Singapore exempts digital payment tokens from GST when used as a currency substitute. Australia applies GST only when crypto is exchanged for goods or services, not when bought or sold as an investment. These jurisdictions have made deliberate legislative choices about whether to tax the asset itself or only the surrounding services — choices India has not yet made [6].

Input Tax Credit and Compliance Complexity

For registered businesses that deal in crypto, there is also the question of input tax credit (ITC) under Section 16 of the CGST Act. ITC is available on inputs used in the course or furtherance of business. A crypto exchange that pays GST on trading infrastructure, software subscriptions, consultancy services, or broker commissions may be entitled to claim ITC on those expenses [9]. Individual traders generally cannot claim ITC because they are not making outward taxable supplies in the course of business.

For DEX liquidity providers — who earn algorithmic fees by depositing token pairs into a liquidity pool — the question is more complicated still. Are those fees consideration for a “service”? Is providing liquidity to a smart contract a “supply of services” under Section 7(1)(a)? If so, the liquidity provider might be required to register and collect GST. The Forvis Mazars report specifically flags DeFi staking and tokenisation as areas of “further complexity” that existing GST structures are not designed to handle [6]. As of now, there is no regulatory clarity on this point.

Conclusion: A Framework in Search of a Subject

In conclusion, crypto-to-crypto swaps are structurally barter transactions under Section 7(1)(a) of the CGST Act, meaning that, in principle, the GST on cryptocurrency in India framework is broad enough to capture them. However, in practice, particularly for transactions on a decentralized exchange (DEX), Section 7 lacks an operational mechanism to enforce tax collection. There is no identifiable taxable person, no clear consideration flowing to a supplier, no reliable valuation methodology, and no jurisdictional certainty,

India’s tax authorities have made meaningful progress on the income tax side — 30% tax, 1% TDS, and mandatory reporting under the new Schedule VDA framework. The GST side has taken a different path, taxing the services that wrap around crypto rather than the assets themselves. Until the GST Council either explicitly exempts DEX swaps or introduces a dedicated valuation and compliance mechanism for crypto-to-crypto transactions, the question of whether GST applies to such swaps will remain open — answered in theory by Section 7, and unanswerable in practice by the realities of decentralized finance.

References

[1] Finance Act, 2022 — Sections 115BBH and 194S, Income Tax Act, 1961: https://incometaxindia.gov.in/Acts/Finance%20Act%202022.pdf

[2] Central Goods and Services Tax Act, 2017 — Sections 2(52), 2(75), 2(101); HSN 960899: https://cbic-gst.gov.in/CGST-act.html

[3] Section 7 CGST Act, 2017 — Scope of Supply, Taxguru analysis: https://taxguru.in/goods-and-service-tax/scope-supply-gst-analyzing-section-7-schedules-i-ii-iii.html

[4] GST Council clarification July 2025 — 18% GST on crypto platform fees; Section 2(102) CGST classification: https://www.taxtmi.com/article/detailed?id=14924

[5] Sales Tax Commissioner v. Ram Kumar Agarwal [(1967) 19 STC 400 All] — Indian Kanoon: https://indiankanoon.org/doc/847108/

[6] Forvis Mazars — Bridging the GST Gap for Virtual Digital Assets (2025): https://www.forvismazars.com/in/en/insights/market-insights/bridging-the-gst-gap-for-virtual-digital-assets

[7] Agrud Partners — Regulating Decentralized Exchanges (DEX): India’s Approach to Crypto Compliance (April 2025): https://agrudpartners.com/decentralized-exchanges-dex-india-crypto-compliance/

[8] Internet and Mobile Association of India v. Reserve Bank of India, 2020 SCC Online SC 275 — Indian Kanoon full judgment: https://indiankanoon.org/doc/12397485/

[9] ClearTax — GST on Supply of Crypto or Digital Assets (ITC, exchange services): https://cleartax.in/s/gst-on-supply-of-crypto-digital-assets

[10] Taxguru — Decoding GST on Cryptocurrency (barter analysis, pre-GST regime): https://taxguru.in/goods-and-service-tax/decoding-gst-cryptocurrency.html