Author: FinTax
Recently, the Indian tax authorities are investigating over 400 high-net-worth individuals trading on Binance, who are suspected of evading substantial taxes imposed on cryptocurrency transactions in India for the period from 2022-23 to 2024-25. India levies a 1% withholding tax and a 30% profit tax on cryptocurrency traders, with an effective tax rate that could reach as high as 42.7%. The high tax rates may be one of the motivations for this group to evade taxes. This investigation stems from a series of developments involving Binance in India: after paying a $2.25 million fine and registering as a "reporting entity" with the Financial Intelligence Unit (FIU), Binance re-entered the Indian market in August 2024. This allows Binance to share information about suspected tax evaders with the Indian government. Additionally, the investigation also covers peer-to-peer (P2P) payments settled through domestic Indian bank accounts or Google Pay. According to local sources, tax departments in various cities have been asked to report their investigative actions by October 17, 2025.
The investigation is initiated by the Central Board of Direct Taxes (CBDT) of India, reviewing the transaction records, settlement details, and wallet flows of certain Binance users for the fiscal years 2022 to 2023 and 2024 to 2025, as well as settlements conducted through local Indian bank accounts or third-party payment applications in Binance P2P transactions. If these traders are found to have failed to fulfill necessary reporting obligations, it may trigger reassessment procedures and impose fines under Section 270A of the Indian Income Tax Act. If cryptocurrencies are obtained from foreign platforms or wallets without proper disclosure, penalties may be imposed under India's Anti-Money Laundering Act.
As for how the tax evasion incidents involving Binance users that triggered the investigation occurred and were discovered, attention must be directed towards India's cryptocurrency tax system and regulatory framework—high cryptocurrency tax rates, stringent tax reporting requirements, and loopholes in the cryptocurrency regulatory system have created motivations and opportunities for users to evade taxes, while increasingly smooth channels for sharing transaction information have greatly facilitated the Indian tax authorities in tracking these tax evasion activities.
1. Overview of India's Cryptocurrency Tax System
1.1 Overview
Since 2022, India has classified cryptocurrencies as Virtual Digital Assets (VDAs) under its Income Tax Act, implementing a strict tax regime: withholding tax and cryptocurrency tax are the main types of taxes involved in cryptocurrency, with a 1% withholding tax (TDS) applicable to each cryptocurrency transfer and a 30% fixed tax rate applicable to cryptocurrency capital gains, along with additional taxes and fees. After comprehensive calculations, the actual tax rate borne by high-net-worth traders may reach up to 42%.
1.2 Withholding Tax
According to the Indian Income Tax Act, for the transfer of cryptocurrencies, traders are required to pay a 1% withholding tax (Tax Deducted at Source, TDS). If the transfer transaction occurs on an Indian exchange, the TDS will be deducted by the exchange and paid to the tax authorities; if the transaction occurs on a P2P platform or overseas exchange, the buyer is responsible for deducting the TDS. If the transaction involves cryptocurrency swaps, a 1% TDS will be levied on both the buyer and seller. Additionally, certain transfer activities may be exempt from TDS, such as transferring cryptocurrencies between one's own wallets, receiving cryptocurrency gifts valued below RS50,000, or receiving any amount of cryptocurrency gifts from direct relatives.
1.3 Cryptocurrency Tax
In addition to withholding tax, India also imposes a 30% cryptocurrency tax on profits obtained from trading cryptocurrencies, disallowing any deductions for expenses other than costs, and not allowing losses to offset gains (Income Tax Act §115BBH). The specific trading scenarios subject to cryptocurrency tax include: selling cryptocurrencies for Indian RS or other fiat currencies; using cryptocurrencies for crypto trading, including stablecoins; using cryptocurrencies to pay for goods and services; etc. However, in some cases, profits from cryptocurrency transactions may be classified by tax authorities as other income, subject to personal income tax rather than cryptocurrency tax, such as receiving cryptocurrency gifts, cryptocurrency mining, paying salaries in cryptocurrency, staking rewards, airdrops, etc. If these cryptocurrencies are subsequently sold, traded, or used, a 30% cryptocurrency tax may be due on the profits obtained.
2. Dynamics of Cryptocurrency Tax Regulation in India
2.1 Regulatory Agencies
Currently, India has not established a dedicated regulatory agency for cryptocurrency regulation but relies on the existing institutional framework, with the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the tax authority under the Ministry of Finance, and the Financial Intelligence Unit (FIU) implementing regulation within their respective responsibilities. The RBI and SEBI maintain a focus on payment systems and tokenized securities concerning cryptocurrencies, while the FIU is primarily responsible for anti-money laundering and reporting obligations, and the tax authority (mainly the CBDT) is responsible for tax matters related to cryptocurrencies.
2.2 Regulatory Trends and Developments
In recent years, India's cryptocurrency tax regulation has evolved from strict restrictions to gradual adjustments. Initially, the RBI took a highly cautious stance towards cryptocurrencies, issuing a warning about speculative risks in 2013; in 2018, the RBI prohibited banks from transacting with cryptocurrency companies, attempting to restrict market development through financial means. However, this ban faced strong opposition from industry organizations and market participants and was ultimately ruled unconstitutional by the Supreme Court of India in 2020.
In 2022, India's budget proposal for the first time included cryptocurrencies and other virtual assets within the legal regulatory framework, establishing a series of cryptocurrency tax policies, including the aforementioned TDS and cryptocurrency tax. This preliminary establishment of the tax regime provided a compliance basis for the industry. In 2025, the introduction of a new budget proposal further strengthened the regulation of cryptocurrency tax reporting and information disclosure, although it did not fundamentally reform the existing tax system, it imposed new requirements on cryptocurrency market participants. The new budget proposal added Section 285BAA to the Income Tax Act, further expanding the regulatory scope, requiring specific institutions to report cryptocurrency transactions within specified time limits; it also broadened the definition of VDAs to include all blockchain-based crypto assets under taxation; and imposed stricter penalties for unreported VDAs, classifying them as "unreported income" and imposing fines of up to 70%, without providing any exemptions or reductions. In short, the 2025 tax reform continued the existing VDA tax system and further strengthened information sharing across entities. Relevant regulations will come into effect in April 2026.
In addition to policy adjustments in tax law, the Indian government is also gradually improving rules under the anti-money laundering law framework, allowing global cryptocurrency exchanges to operate locally after registration and subjecting them to anti-money laundering (AML) and counter-terrorism financing (CFT) regulations. On March 7, 2023, the Indian Ministry of Finance announced that activities related to VDA exchanges, transfers, issuance, or sales have been incorporated into the regulatory framework of the Prevention of Money Laundering Act (PMLA, 2002). According to this law, service providers (VDA SP) operating in India (including offshore and onshore) and engaging in cryptocurrency business must register with the FIU as reporting entities and comply with a series of legal obligations specified in the PMLA, including reporting and record-keeping. At the end of 2023, Binance, along with eight other exchanges, was banned from operating in India due to allegations from the FIU of non-compliance with the PMLA. After paying a $2.25 million fine and registering as a "reporting entity" with the FIU, Binance re-entered the Indian market in August 2024.
3. Summary of Events: High Tax Burden May Drive Tax Evasion
Under India's current cryptocurrency tax system, cryptocurrency traders may need to pay a 1% TDS and a 30% cryptocurrency tax (along with additional taxes and fees) for transactions, transfers, and other activities involving crypto assets. Such high tax rates compel many high-net-worth traders to turn to offshore platforms like Binance, attempting to exploit regulatory loopholes to conceal cryptocurrency profits and evade taxes. However, the large-scale investigation by the Indian tax authorities reveals that such avenues for tax evasion will gradually diminish in the future. In fact, as early as June 2025, the Indian tax authorities sent reminder emails to thousands of violators engaged in cryptocurrency trading without lawful tax reporting, urging them to correct their tax filings promptly. Furthermore, Binance's registration with the Indian Financial Intelligence Unit (FIU) also facilitates regulatory oversight for tax authorities: based on PMLA requirements, Binance, as an FIU reporting entity, must establish customer due diligence and record-keeping processes, improve internal control procedures, fulfill suspicious transaction reporting obligations, and share relevant information about suspected tax evaders with tax authorities.
However, from another perspective, the information sharing from Binance opens a convenient door for Indian tax authorities to track previously hidden wallets and transactions, enabling them to effectively trace and combat tax evasion activities. This also means that under the compliance wave represented by leading exchanges, issues of tax evasion and even money laundering concerning crypto assets will face greater exposure risks. How to protect one's cryptocurrency wealth in a compliant manner may become a focal point of concern for investors for a long time to come.
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