Written by: FinTax
Recently, the Indian tax authorities are investigating over 400 high-net-worth individuals trading on Binance, who are suspected of evading the hefty taxes imposed on cryptocurrency transactions in India from 2022-23 to 2024-25. India imposes a 1% withholding tax and a 30% profit tax on cryptocurrency traders, with an effective tax rate of up to 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 regarding Binance in India: after paying a $2.25 million fine and registering with the Financial Intelligence Unit (FIU) as a 'reporting entity', 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 Indian domestic bank accounts or Google Pay. According to local sources, city tax departments have been asked to report their investigative actions by October 17, 2025.
This investigation was initiated by the Central Board of Direct Taxes (CBDT) of India, examining 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 the settlements conducted via 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 could trigger reassessment procedures and result in fines under Section 270A of the Indian Income Tax Act. If cryptocurrency is obtained from foreign platforms or wallets without properly fulfilling disclosure obligations, penalties may be imposed under India's Anti-Money Laundering Act.
To understand how the tax evasion incidents involving Binance users that triggered investigations occurred and were discovered, we must focus on India's crypto tax system and regulatory framework—high cryptocurrency tax rates, stringent tax reporting requirements, and loopholes in crypto regulation have created motives and space 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 actions.
1. Overview of India's Crypto Tax System
1.1 Overview
Since 2022, India has classified cryptocurrency as Virtual Digital Assets (VDAs) under its Income Tax Act and implemented a strict taxation regime: withholding tax and crypto tax are the main taxes involved with cryptocurrency, with a 1% withholding tax (TDS) applicable to each cryptocurrency transfer and a flat tax rate of 30% applicable to crypto capital gains, along with additional taxes and fees. After comprehensive calculations, the effective tax rate for high-net-worth traders can be as high as 42%.
1.2 Withholding Tax
According to the Indian Income Tax Act, for the transfer of cryptocurrency, 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 foreign exchange, the buyer is responsible for deducting the TDS. For transactions involving cryptocurrency swaps, a 1% TDS will be levied on both buyers and sellers. Additionally, certain transfer activities may be exempt from TDS, such as transferring cryptocurrency between one's own wallets, receiving cryptocurrency gifts valued below RS50,000, or receiving any amount of cryptocurrency gifts from close relatives.
1.3 Crypto Tax
In addition to the withholding tax, India also imposes a 30% crypto tax on profits obtained from trading cryptocurrency, disallowing any deductions for expenses beyond costs, and not allowing losses to offset profits (Income Tax Act §115BBH). The specific trading scenarios involved in the crypto tax include: selling cryptocurrency for Indian RS or other legal tender; using cryptocurrency for crypto transactions, including stablecoins; using cryptocurrency to pay for goods and services; etc. However, in some cases, the income from cryptocurrency transactions may be regarded by tax authorities as other income and taxed under personal income tax rather than the crypto tax, such as receiving cryptocurrency gifts, cryptocurrency mining, paying salaries in cryptocurrency, staking rewards, and airdrops. If these cryptocurrencies are later sold, traded, or used, the profits obtained may be subject to a 30% crypto tax.
2. Dynamics of India's Crypto Tax Regulation
2.1 Regulatory Agencies
Currently, India has not established a dedicated regulatory agency for crypto regulation but relies on the existing institutional framework, with the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), the tax authorities under the Ministry of Finance, and the Financial Intelligence Unit (FIU) implementing regulation within their respective responsibilities. The RBI and SEBI maintain attention on payment systems and tokenization of securities regarding cryptocurrency, the FIU is primarily responsible for anti-money laundering and reporting obligations, while the tax authorities (mainly the Central Board of Direct Taxes, CBDT) are responsible for taxation related to cryptocurrency.
2.2 Regulatory Trends and Dynamics
In recent years, India's crypto tax regulation has evolved from strict restrictions to gradual adjustments. Early on, the RBI took a highly cautious approach to cryptocurrency, having issued a warning about speculative risks in 2013; in 2018, the RBI banned banks from transacting with crypto businesses in an attempt to limit market development through financial means. However, this ban faced strong opposition from industry bodies and market participants and was ultimately deemed unconstitutional by the Supreme Court of India in 2020.
In 2022, India's financial budget first included cryptocurrency and other virtual assets within the legal regulatory framework, establishing a series of crypto tax policies, including the aforementioned TDS and crypto tax, which provided a compliance basis for the industry. In 2025, the introduction of a new financial budget further strengthened regulatory oversight regarding crypto tax reporting and information disclosure, although it did not fundamentally reform the existing tax system, it imposed new requirements on crypto market participants. The new financial budget added Section 285BAA to the Income Tax Act, which further expanded the scope of regulation, requiring specific institutions to report crypto transactions within specified time limits; it further broadened the definition of VDA to include all blockchain-based crypto assets under taxation; and implemented stricter penalties for undeclared VDAs, classifying them as 'undeclared income' with fines of up to 70%, without providing any exemptions or reduction policies. In short, the 2025 tax reform continues the existing VDA tax system and further strengthens information sharing across entities. Relevant regulations will officially take 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 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 the exchange, transfer, issuance, or sale of VDAs 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) must register with the FIU as reporting entities and comply with a series of legal obligations specified in the AML law, 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 by the FIU of non-compliance with AML regulations. After paying a fine of $2.25 million and registering with the FIU as a 'reporting entity', Binance re-entered the Indian market in August 2024.
3. Event Summary: High Tax Burden May Lead to Tax Evasion
Under India's current crypto tax regime, cryptocurrency traders may need to pay a 1% TDS and a 30% crypto tax (along with additional taxes and fees) for transactions and transfers of crypto assets. Such high tax rates have forced many high-net-worth traders to turn to offshore platforms like Binance in an attempt to exploit regulatory loopholes to hide cryptocurrency profits and evade taxes. However, the large-scale investigation activities of the Indian tax authorities reveal that such spaces 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 crypto trading without proper tax reporting, requesting them to timely correct their tax declarations. Additionally, Binance's registration with the Indian Financial Intelligence Unit (FIU) also facilitates regulatory oversight for the tax authorities: based on the requirements of the PMLA, Binance, as a reporting entity of the FIU, needs to 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 the tax authorities.
However, from another perspective, the information sharing from Binance opens the door for Indian tax authorities to track previously hidden wallets and transactions, enabling them to effectively trace and combat tax evasion activities. This also implies that under the compliance wave represented by leading exchanges, issues of crypto asset tax evasion and even money laundering will face greater exposure risks. How to protect one's crypto wealth in a compliant manner may become a focal point of concern for investors for a long time to come.
