The Directorate General of GST Investigation (DGGI) has issued a significant show-cause notice to the global cryptocurrency exchange Binance, demanding over ₹700 crore. This action highlights the ongoing scrutiny Binance faces from Indian authorities.
Sources indicate that the notice pertains to the financial year 2017-18. Despite its extensive global operations spanning over 150 countries, Binance had failed to register under the Indian GST framework. This omission has now placed the company under the lens of Indian tax officials.
A Binance spokesperson commented to BusinessLine, “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.”
Recurring Regulatory Challenges
This recent development marks Binance’s second significant encounter with Indian regulatory authorities. Earlier in June, the Financial Intelligence Unit (FIU) classified Binance as a Reporting Entity (RE) under the Prevention of Money Laundering Act (PMLA). The FIU asserted that Binance, by operating as a Virtual Digital Asset Service Provider and continuing its business activities in India, had failed to fulfill its statutory obligations under the PMLA.
Following a detailed review of Binance’s written and oral submissions, the Director of FIU-IND found the charges against Binance to be substantiated. Consequently, on June 19, the FIU imposed a hefty penalty exceeding ₹18.82 crore. Additionally, the agency issued specific directives to Binance to ensure strict compliance with the PMLA and the PMLA Maintenance of Record Rules (PMLA Rules) of 2005, aimed at preventing money laundering activities and combating the financing of terrorism (AML/CFT).
India’s Growing Crypto Market Amidst Regulatory Uncertainty
India continues to attract global crypto players despite a stringent tax regime. According to a 2023 global report on crypto by Chainalysis, India remains a top player in the crypto market, even with a 30% tax on gains and a 1% Tax Deducted at Source (TDS). The report highlighted India’s leading position in grassroots crypto adoption and its rank as the second-largest crypto market worldwide by transaction volume, surpassing several wealthier nations. The US tops the list, while India recorded transactions exceeding $260 billion.
In India, cryptocurrencies are referred to as Virtual Digital Assets (VDAs), encompassing both cryptocurrencies and NFTs. Effective April 1, 2022, any income from the transfer of VDAs is taxable at a rate of 30%, plus surcharge and cess. Additionally, the government introduced a 1% TDS on VDA transactions from July 1, 2022, applicable to individuals and HUFs purchasing any VDA.
As Binance navigates these regulatory challenges, its commitment to compliance and transparency will be crucial in maintaining its operations within India. The crypto exchange’s interactions with Indian authorities underscore the importance of adhering to local regulations in the rapidly evolving global cryptocurrency landscape.
