The Indian government’s stance on cryptocurrency continues to evolve, with a recent move raising the stakes for offshore crypto exchanges. Law enforcement agencies in India have demanded a hefty $86 million (722 crore Indian rupees) in unpaid taxes from crypto giant Binance.
This development comes after Binance’s attempt to re-enter the Indian market in April 2024. Following a ban in January for non-compliance with local regulations, Binance initially expressed interest in restarting operations after addressing outstanding tax liabilities. However, the recent tax demand by the Directorate General of Goods and Service Tax Intelligence (DGGI) throws a wrench in those plans.
According to The Times of India, investigations by DGGI revealed that Binance allegedly earned at least Rs 4,000 crore (approximately $500 million) from transaction fees charged to Indian customers during its prior operation in the country. The source further alleges that these collected fees were deposited into the account of a Seychelles-based subsidiary, Nest Services Limited.
This tax demand marks a significant development. It represents the first instance of the Indian government pursuing unpaid taxes from a crypto exchange. Furthermore, Indian authorities reportedly sent email notices to Binance offices in Seychelles, Cayman Islands, and Switzerland, which were initially ignored. However, Binance has since appointed a local counsel to address the tax issue officially.
India’s tax framework for crypto necessitates compliance from both service providers and investors. Crypto service providers, including exchanges, are required to collect and deposit a 1% tax deducted at source (TDS) for every crypto transaction, regardless of its value. Additionally, all profits derived from crypto investments are subject to a 30% tax.
While Indian crypto exchanges like WazirX and CoinDCX have implemented systems to streamline tax obligations for their users, offshore exchanges like Binance failed to enforce such measures during their operational period. This disparity created a situation where Indian crypto investors were potentially exposed to tax liabilities without a clear mechanism for compliance.
Initially, Binance reportedly proposed a $2 million fine to settle the non-compliance issue and regain access to the Indian market. However, the DGGI’s $86 million demand aims to recover the transaction fees collected from Indian users by Binance during its previous operation.
The Indian government’s focus on offshore crypto exchanges stems from concerns about tax evasion and potential money laundering activities. Authorities are actively targeting exchanges that operated without registering under India’s Goods and Services Tax (GST) framework. The GST system features a tiered tax structure with rates ranging from 5% to 28%, with specific goods and services attracting additional cess charges.
This tax demand is likely to set a precedent for other offshore crypto exchanges operating in India. Huobi, Kraken, Gate.io, KuCoin, Bitstamp, MEXC Global, Bittrex, and Bitfinex are among the exchanges that may face similar tax demands from Indian authorities in the near future.
Global Tax Battles for Binance
The tax dispute in India is not an isolated incident for Binance. The company is reportedly embroiled in legal battles related to tax evasion accusations in other parts of the world, including Nigeria. As crypto regulations evolve globally, exchanges like Binance will need to navigate a complex landscape of tax requirements and compliance measures.
