Indian law enforcement has levied a substantial tax demand of 722 crore Indian rupees (equivalent to $86 million) against crypto exchange giant Binance. This development marks a move in India’s ongoing effort to tax the cryptocurrency sector.
On August 6, the Directorate General of Goods and Services Tax Intelligence (DGGI) issued a tax demand under the Goods and Services Tax (GST) framework.
Sources said Binance had apparently collected at least Rs 4,000 crore from transaction fees paid to Indian consumers. These profits were credited to Nest Services Limited, a Binance Group entity with Seychelles’ headquarters. The investigation’s findings have led to the substantial tax demand, aiming to recoup the unpaid taxes on these earnings.
Magnitude of Fine
In January 2024, Binance, along with several other offshore crypto exchanges, was banned in India for failing to comply with local regulations. Despite this setback, Binance announced in April its intention to resume operations in India, contingent on settling its outstanding tax liabilities.
Binance’s initial strategy to address the non-compliance included paying a $2 million fine and re-establishing its services in India. However, the magnitude of the fine has since escalated to $86 million.
Following the DGGI’s notice, Indian officials notified Binance offices in Switzerland, the Cayman Islands, and Seychelles. Binance first disregarded these notifications. But since then, the exchange has assigned local legal counsel to officially handle and fulfill its tax responsibilities in India.
Crypto Tax Obligations
Indian regulations mandate that all crypto service providers and investors must pay a 1% tax deducted at source (TDS) on every crypto transaction, regardless of the transaction’s value. Additionally, profits from crypto investments are subject to a 30% tax.
While domestic exchanges like WazirX and CoinDCX had implemented systems to manage these tax obligations, many offshore exchanges, including Binance, had not enforced these requirements.
Regulatory Landscape and Future Prospects
The Indian crypto sector has been eagerly awaiting a comprehensive regulatory framework to provide clarity and legal certainty for establishing and expanding their operations. However, the Indian government has yet to follow the lead of regions like the EU and the UAE in implementing detailed national crypto regulations.
In a recent written response to the Lok Sabha, Minister of State for Finance Pankaj Chaudhary stated that there are no immediate plans to introduce legislation for regulating the sale and purchase of virtual assets.
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