Recently, Indian tax authorities are investigating over 400 high-net-worth individuals trading on Binance for suspected evasion of high taxes on cryptocurrency transactions from 2022-23 to 2024-25. India imposes a 1% withholding tax and a 30% tax on profits for cryptocurrency traders, with the effective tax rate potentially reaching as high as 42.7%. This high tax rate may be one of the motivations for this group to evade taxes. This investigation stems from a series of developments involving Binance in India: Binance re-entered the Indian market in August 2024 after paying a $2.25 million fine and registering with the Financial Intelligence Unit (FIU) as a "reporting entity." This enables 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 on their investigation actions by October 17, 2025.
This investigation was initiated by India's Central Board of Direct Taxes (CBDT), reviewing the transaction records, settlement details, and wallet flows of some Binance users for the financial years 2022-2023 and 2024-2025, as well as settlements in Binance P2P transactions made through local Indian bank accounts or third-party payment apps. If these traders are found to have failed to meet necessary reporting obligations, it could trigger reassessment procedures and penalties under Section 270A of the Indian Income Tax Act. If cryptocurrency was obtained from foreign platforms or wallets without proper disclosure, penalties may be imposed under India's Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act.
As for how the tax evasion incidents by Binance users that triggered the investigation occurred, and how they were discovered, one must look at India's crypto tax and regulatory system. The region's high cryptocurrency tax rates, strict tax reporting requirements, and a crypto regulatory system with loopholes created both the motive and the space for users to evade taxes. Meanwhile, increasingly smooth channels for sharing transaction information have provided great convenience for Indian tax authorities to track these tax evasion activities.
1. A Breakdown of India's Crypto 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. The main taxes involved for cryptocurrency are the tax deducted at source and the crypto tax. Among these, a 1% Tax Deducted at Source (TDS) applies to every cryptocurrency transfer, and a 30% flat tax rate applies to crypto capital gains, with additional taxes and surcharges. After comprehensive calculation, the actual tax rate for high-net-worth traders could be as high as 42%.
1.2 Tax Deducted at Source
According to the Indian Income Tax Act, for the transfer of cryptocurrency, traders are required to pay a 1% 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 department. If the transaction happens on a P2P platform or an overseas exchange, the buyer has the obligation to deduct the TDS. If the transaction is a crypto-for-crypto swap, a 1% TDS will be levied on both the buyer and the seller. In addition, some transfer activities are exempt from TDS, such as transferring cryptocurrency between one's own wallets, receiving a crypto gift valued at less than RS 50,000, or receiving a crypto gift of any amount from an immediate family member.
1.3 Crypto Tax
In addition to the Tax Deducted at Source, India also imposes a 30% crypto tax on profits obtained from trading cryptocurrency, with no deductions allowed for any expenses other than the cost of acquisition, and no offsetting of losses (Income Tax Act §115BBH). Specific transaction scenarios involving the crypto tax include: selling cryptocurrency for Indian RS or other fiat currency; using cryptocurrency for crypto-to-crypto trades, including stablecoins; using cryptocurrency to pay for goods and services; and so on. However, in some cases, income from cryptocurrency transactions may be treated as other income by the tax department and taxed at slab rates for personal income tax instead of the crypto tax. Examples include receiving crypto gifts, crypto mining, being paid wages in crypto, staking rewards, airdrops, etc. If these cryptocurrencies are later sold, traded, or used, the 30% crypto tax may need to be paid on the profits earned.
2 India's Crypto Tax Regulatory Dynamics
2.1 Regulatory Bodies
Currently, India has not established a specialized regulatory body for crypto supervision. Instead, it relies on its existing institutional framework, with the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the tax authorities under the Ministry of Finance, and the Financial Intelligence Unit (FIU) implementing supervision within their respective areas of responsibility. The RBI and SEBI keep an eye on cryptocurrencies regarding payment systems and securitized tokens, respectively. The FIU is mainly responsible for anti-money laundering and reporting obligations, while the tax authorities (mainly the Central Board of Direct Taxes, CBDT) are responsible for taxes related to cryptocurrency.
2.2 Regulatory Trends and Dynamics
In recent years, India's crypto tax regulation has undergone an evolution from strict restrictions to gradual adjustments. In the early days, the RBI held a highly cautious stance on cryptocurrency, issuing a notice in 2013 warning of speculative risks. In 2018, the RBI banned banks from dealing with crypto businesses, attempting to limit market development through financial means. However, this ban was met with strong opposition from industry bodies and market participants, and was finally ruled unconstitutional by the Supreme Court of India in 2020.
In 2022, India's released Union Budget brought cryptocurrency and other virtual assets into the legal regulatory framework for the first time, establishing a series of crypto tax policies, including the aforementioned TDS and crypto tax. The initial establishment of this tax system provided a basis for industry compliance. In 2025, the introduction of the new Union Budget further strengthened regulation regarding crypto tax filing and information disclosure. Although it did not fundamentally reform the existing tax system, it introduced new requirements for crypto market participants. The new budget added Section 285BAA to the Income Tax Act, which further expanded the scope of regulation, requiring specific institutions to report crypto transactions within prescribed time limits. It also further expanded the definition of VDA, bringing all blockchain-based crypto assets into the scope of taxation. Stricter penalty measures were implemented for undeclared VDAs, classifying them as "unreported income" and imposing fines of up to 70%, without providing any exemptions or relief. In short, the 2025 tax reform continues the existing VDA tax system and further strengthens information sharing across entities. The relevant provisions will officially take effect in April 2026.
In addition to policy adjustments in tax law, the Indian government has also been progressively improving rules under the anti-money laundering law framework, allowing global cryptocurrency exchanges to register locally and operate, and placing them under the constraints of Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) norms. On March 7, 2023, the Indian Ministry of Finance issued a notification clarifying that activities related to VDA exchange, transfer, issuance, or sale have been brought under the regulatory framework of the Prevention of Money Laundering Act, 2002 (PMLA). According to this act, service providers operating in India (including offshore and onshore) and engaged in cryptocurrency business (VDA SP) must register with the FIU as reporting entities and comply with a series of legal obligations stipulated by the PMLA, including reporting and record-keeping. At the end of 2023, Binance, along with eight other exchanges, was banned from operating in India for allegedly failing to comply with the provisions of the PMLA as accused by the FIU. Binance only re-entered the Indian market in August 2024 after paying a $2.25 million fine and registering with the FIU as a "reporting entity".
3. Event Summary: High Tax Burden Likely a Motive for Tax Evasion
Under India's current crypto tax system, cryptocurrency traders may be required to pay 1% TDS and 30% crypto tax (as well as surcharges and cesses) for activities such as crypto asset transactions and transfers. Such high tax rates have forced many high-net-worth traders to turn to offshore platforms like Binance, attempting to conceal cryptocurrency profits and evade taxes by exploiting regulatory loopholes. However, this large-scale investigation by the Indian tax authorities reveals that such space for tax evasion will gradually shrink in the future. In fact, as early as June 2025, the Indian tax department had sent reminder emails to thousands of defaulters who had engaged in crypto transactions but failed to file taxes as required, asking them to amend their tax filings promptly. Furthermore, Binance's registration with India's Financial Intelligence Unit (FIU) also facilitates regulation by the tax authorities. Based on PMLA requirements, Binance, as an FIU reporting entity, 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 department.
However, from another perspective, information sharing from Binance has opened the door for Indian tax authorities to trace previously hidden wallets and transactions, enabling them to effectively track and combat tax evasion activities. This also means that under the compliance wave led by top exchanges, the risks of exposure for crypto asset tax evasion and even money laundering will increase. How to protect one's crypto wealth in a compliant manner will likely become a key focus for investors for a long time to come.
References:
1. https://bravenewcoin.com/insights/india-investigates-400-wealthy-binance-traders-for-tax-evasion
2. https://coincentral.com/india-targets-400-binance-traders-in-major-tax-evasion-investigation/
5. https://incometaxindia.gov.in/Communications/Circular/Circular-No-13-2022.pdf
6. https://incometaxindia.gov.in/Acts/Income-tax%20Act%2C%201961/2024_1/102120000000081156.htm
8. https://www.rbi.org.in/commonperson/English/Scripts/PressReleases.aspx?Id=2522&utm
9. https://www.rbi.org.in/commonperson/English/Scripts/Notification.aspx?Id=2632&utm
10. https://incometaxindia.gov.in/budgets%20and%20bills/2025/memo-2025.pdf
11. https://egazette.gov.in/WriteReadData/2023/244184.pdf?utm
12. https://www.pib.gov.in/PressReleasePage.aspx?PRID=1991372&utm
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