Behind the Tax Investigation Affecting Hundreds of Binance Users: An Overview of India's Cryptocurrency Taxation and Regulatory Regime
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Behind the Tax Investigation Affecting Hundreds of Binance Users: An Overview of India's Cryptocurrency Taxation and Regulatory Regime
Recently, India's tax authorities are investigating over 400 high-net-worth individuals who traded on Binance, suspected of evading high taxes imposed on cryptocurrency transactions in India from 2022-23 to 2024-25.
Navigating Web3 tides with focused insightsAuthor: FinTax
Recently, India's tax authorities are investigating over 400 high-net-worth individuals who traded on Binance, suspected of evading substantial taxes levied on cryptocurrency transactions between the fiscal years 2022–23 and 2024–25. India imposes a 1% withholding tax and a 30% profit tax on crypto traders, leading to an effective tax rate as high as 42.7%. This heavy tax burden may be one of the motivations behind such tax evasion. The investigation stems from Binance’s recent developments 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 probe covers peer-to-peer (P2P) payments settled via Indian bank accounts or Google Pay. According to local sources, city-level tax departments have been directed to report their investigation progress by October 17, 2025.
The Central Board of Direct Taxes (CBDT) initiated this investigation, reviewing transaction records, settlement details, wallet flows for certain Binance users during the 2022–23 and 2024–25 fiscal years, along with settlements made through local Indian bank accounts or third-party payment apps in Binance’s P2P trades. If these traders are found to have failed in fulfilling mandatory reporting obligations, reassessment proceedings may be triggered, resulting in penalties under Section 270A of India’s Income Tax Act. Failure to properly disclose crypto assets obtained from foreign platforms or wallets could also lead to penalties under India’s Black Money Act.
To understand how the tax evasion by Binance users being investigated occurred and was uncovered, attention must turn to India’s crypto taxation regime and regulatory framework—high local crypto tax rates, stringent tax reporting requirements, and loopholes within the existing regulatory system have created both motivation and opportunity for users to evade taxes. Meanwhile, increasingly seamless channels for sharing transaction data have greatly empowered Indian tax authorities in tracking down such evasion.
1. Overview of India’s Crypto Tax Regime
1.1 Summary
Since 2022, India has classified cryptocurrencies as Virtual Digital Assets (VDAs) under its Income Tax Act, establishing a strict taxation regime. Two main taxes apply: Tax Deducted at Source (TDS) and the crypto-specific income tax. A 1% TDS applies to every crypto transfer, while a flat 30% tax applies to crypto capital gains, plus surcharge and cess. When combined, the effective tax rate for high-value traders can reach up to 42%.
1.2 Tax Deducted at Source (TDS)
Under India’s Income Tax Act, a 1% TDS applies to transfers of cryptocurrency. If the transaction occurs on an Indian exchange, the platform deducts and remits the TDS to tax authorities. For transactions on P2P platforms or overseas exchanges, the buyer is responsible for deducting TDS. In cases of crypto-to-crypto swaps, each party is subject to a 1% TDS. However, certain transfers are exempt from TDS, including moving crypto between one’s own wallets, receiving crypto gifts valued below INR 50,000, or receiving crypto gifts of any amount from immediate family members.
1.3 Crypto Income Tax
In addition to TDS, India levies a 30% tax on profits from crypto trading, allowing no deductions beyond acquisition cost and disallowing loss offsetting (under Section 115BBH of the Income Tax Act). Taxable scenarios include selling crypto for Indian rupees or other fiat currencies; using crypto in crypto trades, including stablecoins; and using crypto to pay for goods and services. However, in some cases, such as receiving crypto gifts, mining, salary paid in crypto, staking rewards, or airdrops, the receipt is treated as other income and taxed under regular income tax slabs instead of the 30% crypto tax. Subsequent sale, trade, or use of such crypto may then trigger a 30% tax on the resulting gains.
2. Developments in India’s Crypto Tax Oversight
2.1 Regulatory Authorities
India currently lacks a dedicated regulator for cryptocurrencies and relies instead on existing institutions. The Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), tax department under the Ministry of Finance, and the Financial Intelligence Unit (FIU) oversee different aspects within their respective mandates. The RBI and SEBI monitor payment systems and tokenized securities, FIU focuses on anti-money laundering (AML) and reporting obligations, while the tax department—primarily CBDT—handles taxation matters related to crypto.
2.2 Regulatory Trends and Developments
In recent years, India’s crypto tax oversight has evolved from strict restrictions toward gradual adjustments. Initially, the RBI adopted a highly cautious stance, issuing warnings about speculative risks in 2013. In 2018, it banned banks from dealing with crypto businesses, aiming to restrict market growth through financial channels. However, this ban faced strong opposition from industry players and was ultimately struck down as unconstitutional by India’s Supreme Court in 2020.
In 2022, India’s budget formally brought cryptocurrencies and other virtual assets into the legal framework, introducing key tax policies such as the aforementioned TDS and 30% crypto tax. This initial regulatory clarity provided a compliance basis for the industry. The 2025 budget further strengthened oversight on tax reporting and disclosure requirements. While not fundamentally altering the existing tax structure, it introduced new obligations for market participants. A new Section 285BAA was added to the Income Tax Act, expanding the scope of reporting: certain entities must now report crypto transactions within specified timelines; the definition of VDAs was broadened to include all blockchain-based digital assets; and stricter penalties were imposed for unreported VDAs, classifying them as "unreported income" with fines reaching up to 70%, without offering exemptions or relief. In short, the 2025 reforms maintain the existing VDA tax framework while enhancing cross-entity information sharing. These provisions will take effect from April 2026.
Beyond tax legislation, the Indian government has progressively refined rules under its anti-money laundering framework, allowing global crypto exchanges to operate locally upon registration, subjecting them to Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) regulations. On March 7, 2023, the Ministry of Finance announced that activities involving exchange, transfer, issuance, or sale of VDAs are now covered under the Prevention of Money Laundering Act (PMLA), 2002. Under this law, service providers engaged in crypto-related operations in India—both offshore and onshore (VDA SPs)—must register with the FIU as reporting entities and fulfill statutory obligations including reporting and record-keeping. By the end of 2023, Binance and eight other exchanges were barred from operating in India after being accused by FIU of non-compliance with PMLA. Only after paying a $2.25 million penalty and registering as a "reporting entity" with FIU did Binance re-enter the Indian market in August 2024.
3. Summary: High Tax Burden as a Driver of Tax Evasion
Under India’s current crypto tax regime, traders may face a 1% TDS and a 30% crypto tax (plus surcharge and cess) on transactions and transfers of crypto assets. Such a high tax burden has driven many high-net-worth individuals to offshore platforms like Binance, attempting to exploit regulatory gaps to conceal profits and evade taxes. However, this large-scale investigation by Indian tax authorities signals that such evasion opportunities are shrinking. As early as June 2025, Indian tax authorities had already sent reminder emails to thousands of non-compliant individuals involved in crypto trading but failing to file tax returns, urging them to rectify their filings promptly. Moreover, Binance’s registration with India’s Financial Intelligence Unit (FIU) facilitates tax oversight: under PMLA, as a reporting entity, Binance must implement customer due diligence, strengthen internal controls, report suspicious transactions, and share information about suspected tax evaders with tax authorities.
On the other hand, information sharing from Binance opens a convenient pathway for Indian tax authorities to trace previously hidden wallets and transactions, enabling more effective detection and prosecution of tax evasion. This also means that under the wave of compliance led by major crypto exchanges, risks of exposure for crypto tax evasion and even money laundering are rising significantly. How to safeguard crypto wealth through compliant means may become a central concern for investors in the long term.
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