Binance Faces Rs 700 Crore Penalty for Tax Evasion – What You Need to Know

The Directorate General of GST Investigation (DGGI) has issued a show cause notice to Binance, one of the world’s leading cryptocurrency exchanges, demanding over Rs 700 crore.

The notice concerns the fees collected from Indian customers dealing in virtual digital assets (VDAs) on the Binance platform, categorizing this service under the online information database access or retrieval (OIDAR) services. This action covers the fiscal period starting from 2017-18.

Non-Compliance with Indian GST Framework

Despite being a major player in the global cryptocurrency market, with operations spanning more than 150 countries, Binance had not registered under the Indian GST framework. This oversight has now brought the company under the scrutiny of Indian tax authorities. Binance’s official website describes the platform as “the world’s leading blockchain ecosystem, with a product suite that includes the largest digital asset exchange.”

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A Binance spokesperson clarified the company’s stance to media: “We are aware of certain media reports circulating regarding tax notices being issued by Indian GST authorities to global crypto platforms. We would like to clarify that Binance is, and has always been, committed to adhering to relevant domestic legislations applicable to us. We are fully cooperating with the Indian authorities to address any concerns. Binance remains dedicated to maintaining the highest standards of compliance and transparency in the industry.”

Previous Regulatory Issues

This recent GST notice is not Binance’s first encounter with Indian regulatory authorities. Earlier, in June, the Financial Intelligence Unit (FIU) issued a notice to Binance under the Prevention of Money Laundering Act (PMLA). The FIU identified Binance as a Reporting Entity (RE) due to its operations as a Virtual Digital Asset Service Provider, which involves designated business activities under the PMLA.

The notice, dated December 28, 2023, cited Binance’s failure to comply with its statutory obligations under the PMLA, despite its status as a Reporting Entity. Following a review of Binance’s written and oral submissions, the Director of FIU-IND substantiated the charges against Binance. Consequently, the FIU imposed a penalty exceeding Rs 18.82 crore on June 19. Additionally, the FIU issued specific directives to Binance to ensure diligent compliance with the obligations outlined in the PMLA and the PMLA Maintenance of Record Rules (PMLA Rules) of 2005. These directives aim to prevent money laundering activities and combat the financing of terrorism (AML/CFT).

India’s Crypto Market Landscape

India continues to attract global players in the cryptocurrency market, despite its stringent tax regulations. A 2023 report by Chainalysis highlights India’s significant position in the global crypto landscape. Despite the imposition of a 30% tax on gains and a 1% Tax Deducted at Source (TDS) on VDAs, India remains one of the top crypto markets in the world.

According to the report, India leads the world in grassroots crypto adoption as measured by the Global Crypto Adoption Index. More impressively, India has become the second-largest crypto market in the world by raw estimated transaction volume, surpassing several wealthier nations. The United States leads the table, but transactions in India are pegged at over $260 billion.

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Regulatory Environment

India does not officially use the term “cryptocurrency.” Instead, the Indian Tax Administration refers to cryptocurrencies and NFTs as Virtual Digital Assets (VDAs). Effective April 1, 2022, any income from the transfer of VDAs is taxable at the rate of 30%, plus surcharge and cess. Furthermore, the government introduced a 1% TDS on VDA transactions effective from July 1, 2022. This TDS is deducted by any individual or HUF while buying a VDA.

The lack of a comprehensive regulatory framework for cryptocurrencies in India has not deterred global players from entering the market. However, the ongoing scrutiny of platforms like Binance underscores the importance of compliance with local laws to avoid significant penalties and legal challenges.

As the Indian government continues to refine its regulatory approach to VDAs, the industry can expect more stringent oversight. This is crucial to ensuring compliance and transparency in the rapidly evolving digital asset landscape. The case of Binance serves as a stark reminder to global crypto platforms about the necessity of adhering to local regulations to maintain smooth operations and avoid legal entanglements in the burgeoning Indian market.

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