“Exploring Legal Lacunae and Legislative Imperatives in India’s Indirect Tax Regime”
Introduction:
Welcome to the metaverse, a realm where reality bends, your neighbour might be a lifelike tiger, yoga unfolds among the stars, and digital fashion flaunts price tags that rival the real world. As surreal as that sounds, it’s real—and so are the transactions. In these immersive virtual spaces, people buy land, host concerts, sell artwork, and even offer professional services. But here’s the big question: how does India’s Goods and Services Tax (GST) system tax these virtual dreams?
India’s GST regime, born in 2017, was drafted in a pre-metaverse world. It thrives on tangible, location-specific transactions. Yet the metaverse is borderless, intangible, and decentralized, a terrain that traditional tax laws don’t just struggle with, they outright ignore.
GST in a Tangible World Meets the Intangible Metaverse :
Section 2(52) of the CGST Act characterises “goods” as all types of movable property, excluding money and securities, but encompassing actionable claims, crops, grass, and items attached to or forming part of the land, provided they are agreed to be severed before or under a contract of supply.[1] Although this definition may be adequate for tangible commodities in the physical realm, it struggles to address the complexities posed by virtual assets in the digital domain.
Consider NFTs, digital representations of art, collectibles, or even land parcels in virtual platforms like Decentraland. Are these goods or services? Or consider leasing a storefront in a virtual shopping complex, should it be treated as a license to use intangible property or a rental agreement? At present, there is no statutory or administrative guidance from the Central Board of Indirect Taxes and Customs (CBIC) on such classifications.
Similarly, the IGST Act’s provisions on the “place of supply” are rooted in physical presence and territorial jurisdiction.[2] In the metaverse, transactions transcend geographic boundaries. If a digital artist based in India sells an NFT to a user in Japan via a blockchain platform, is the transaction an export of service? Where does the supply truly occur? In the vast expanse of virtual realms, such questions continue to linger unanswered under the current framework of Indian law.
Digital Goods, Invisible Laws: A Grey Zone in the GST Framework :
The GST framework in India, though lauded for its unifying tax structure, continues to lag behind the pace of digital innovation. The categorisation and taxation of digital assets like in-game tokens, NFTs, and virtual properties remain shrouded in ambiguity due to the absence of clear statutory guidelines.
Unlike tangible commodities, digital goods are often algorithmically generated, lack physical form, and can be transferred instantaneously across borders, making their tax treatment highly complex. The absence of a dedicated category within GST schedules for such assets creates uncertainty for developers, consumers, and regulators alike.
Although courts have taken initial steps in examining the nature of digital assets through select judgments, the absence of proactive legislative intervention has left much of this domain adrift in a regulatory vacuum. This vacuum not only increases the risk of non-compliance but also denies the state a potential source of revenue in the burgeoning digital economy.
The Taxing Problem of Identity :
Let’s take it a notch deeper. In the metaverse, identities are fluid. An individual can operate as multiple avatars across platforms. Imagine an avatar called “CryptoBaba” offering paid legal advice in a virtual chamber. If the person behind CryptoBaba earns real money for that service, who’s the taxable person? Under GST law, taxation is based on personhood, not pixelhood.
Now if we extend that thought – what if the platform hosting CryptoBaba is registered outside India, the payment is made in Ethereum, aand the service is consumed by a user in Canada? Can the Indian tax authorities even track this transaction, let alone tax it?
International Moves: While India Stares, Others Dare :
As India hesitates at the crossroads of policy and innovation, other nations have already stepped into the future. Countries like the UK and Singapore aren’t just observing the digital revolution—they’re regulating it. From NFTs to crypto-assets, they’ve rolled out clear tax guidelines that provide certainty to users and businesses alike.
The European Union, too, is boldly reshaping its tax framework through the ViDA proposal, proving that even complex, decentralised systems can be brought within legal fold. Meanwhile, India watches from the sidelines, yet to define where virtual goods stand under GST.In an era where digital cities are rising and virtual land is changing hands, staying silent isn’t staying safe – it’s a gamble. If India wants to lead in the digital age, it cannot afford to blink while others boldly dare.
Lessons from Comparative Jurisdictions: How the World is Reacting ?
Globally, several jurisdictions have acknowledged the disruptive potential of the metaverse and are adapting their tax frameworks accordingly. The United Kingdom, through its HM Revenue and Customs (HMRC), has provided clear guidance on the treatment of crypto-assets for VAT purposes, distinguishing between exchange tokens, utility tokens, and security tokens. This level of granularity is crucial for businesses and consumers operating in virtual economies.
Singapore’s Inland Revenue Authority (IRAS) has published e-tax guides that outline the GST treatment of digital tokens. These guidelines clarify that digital payment tokens are exempt from GST, while utility tokens and NFTs may be subject to GST depending on the specific transaction. Meanwhile, the European Union has introduced the VAT in the Digital Age (ViDA) reforms, emphasising the necessity to redefine concepts like “place of supply” and “establishment” to better address electronically supplied services.
India, by contrast, remains in a state of normative silence. Despite introducing a 30% income tax on gains from Virtual Digital Assets (VDAs) and a 1% TDS provision, these mechanisms operate exclusively under direct tax regimes. The absence of a parallel framework in indirect taxation creates asymmetry and encourages arbitrage. As India rapidly digitises its economy, such inconsistency could hinder regulatory clarity, stifle innovation, and potentially lead to revenue losses.
Constitutional Dimensions: A Case for Harmonisation :
It is also imperative to consider the constitutional implications of taxing virtual realities. Article 265 of the Constitution of India stipulates that no tax shall be imposed or collected unless authorized by law.¹¹ Therefore, if GST is applied to metaverse transactions without clear legislative support, it may face legal scrutiny.
Moreover, Article 301 guarantees freedom of trade and commerce across the country. Any over-regulation of metaverse transactions in the absence of proper understanding or stakeholder consultation could be perceived as a violation of digital trade freedoms.
Thus, any reform in this domain must balance fiscal interests with constitutional fidelity.
The Need for a New Tax Lexicon :
India’s existing tax vocabulary is still stuck in the age of brick-and-mortar trade, while the digital world has moved on to avatars, NFTs, and decentralised economies. The GST law, as it stands, lacks the linguistic and conceptual tools to interpret the nuanced nature of virtual transactions. Can you tax a digital concert attended through a VR headset? Or a plot of land bought in a blockchain-based metaverse?
These aren’t hypotheticals anymore—they’re real economic activities happening in real time. To respond effectively, India needs more than minor tweaks; it needs an entirely new lexicon. Terms like “virtual supply,” “metaverse marketplace,” and “digital residency” must find their place in statutory language. Without this upgrade in terminology and legal imagination, GST risks becoming obsolete in a world that’s moving at the speed of code.
Conclusion: From Policy Paralysis to Tax Clarity
The metaverse is no longer a futuristic concept—it is a thriving economic ecosystem that demands regulatory attention. India’s existing GST framework, though built on a technologically advanced foundation, falls short of possessing the conceptual tools necessary to navigate and effectively tax the evolving landscape of virtual realities. The legal vacuum surrounding digital goods, ambiguous classification norms, jurisdictional challenges, and the absence of global harmonisation put India at a crossroads.
The urgency is clear: without proactive legislative and administrative intervention, India risks not only revenue leakage but also regulatory irrelevance. As a growing digital powerhouse, India must lead by example—not by hesitating in the shadows of technological transformation, but by stepping into the metaverse with clarity, precision, and vision.
In conclusion, to answer the central question “Is India’s GST ready for virtual realities?”. The present answer is a definitive no. But with timely legal evolution, coordinated policymaking, and stakeholder engagement, the answer could transform into a confident yes. The metaverse may be virtual, but the tax it generates and the law that governs it, must be firmly grounded in reality.
Author: S. Sruthi, student at The Central Law College, Salem
[1] Goods: An Analysis, Knowledge Share 18–19
[2] The Integrated Goods and Services Tax Act, No. 13 of 2017, § 10, India Code.
Link to similar articles: https://jpassociates.co.in/effect-of-nfts-on-trademark-law/
Link to WIPO’s website: https://www.wipo.int/portal/en/index.html
