Behind the Tax Investigations of Hundreds of Binance Users: An Overview of India's Crypto Asset Tax and Regulatory System

According to local sources, tax authorities in various cities have been asked to report on their investigative actions by October 17, 2025.

Author: FinTax

Indian tax authorities are currently investigating over 400 high-net-worth individuals trading on Binance, suspected of evading substantial taxes on cryptocurrency transactions between 2022-23 and 2024-25. India levies a 1% withholding tax and a 30% profit tax on cryptocurrency traders, resulting in an effective tax rate as high as 42.7%, which may be one of the motivations for this group to evade taxes. This investigation stems from a series of Binance activities 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 on suspected tax evaders with the Indian government. Furthermore, the investigation also covers peer-to-peer (P2P) payments settled through Indian domestic bank accounts or Google Pay. According to local sources, city tax authorities have been required to report their investigations by October 17, 2025.

This investigation, initiated by the Central Board of Direct Taxes (CBDT) of India, examines the transaction records, settlement details, and wallet flows of selected Binance users during the fiscal years 2022-2023 and 2024-2025, as well as settlements made through Indian local bank accounts or third-party payment applications in Binance P2P transactions. If these traders are found to have failed to fulfill necessary reporting obligations, a reassessment process may be triggered, potentially leading to penalties under Section 270A of the Indian Income Tax Act. Failure to properly disclose cryptocurrency acquired from foreign platforms or wallets may result in penalties under the Indian Black Money Act.

As for how the Binance user tax evasion incident that triggered the investigation occurred and how it was discovered, we need to look at India's crypto tax system and regulatory framework. The high local cryptocurrency tax rate, strict tax reporting requirements, and the flawed crypto regulatory system created motivation and space for users to evade taxes, while increasingly smooth transaction information sharing channels greatly facilitated the Indian tax authorities in tracking these tax evasion activities.

1. Overview 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, imposing a strict tax system. The main taxes related to cryptocurrencies are Source Deduction (TDS) and Crypto Tax. A 1% Source Deduction (TDS) applies to each cryptocurrency transfer, while a flat 30% rate applies to crypto capital gains, supplemented by additional taxes and fees. After comprehensive calculation, the actual tax rate borne by high-net-worth individuals can reach as high as 42%.

1.2 Source tax deduction

Under India's Income Tax Act, traders are required to pay a 1% Tax Deducted at Source (TDS) on cryptocurrency transfers. If the transfer takes place 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 an overseas exchange, the buyer is obligated to deduct the TDS. If the transaction is a cryptocurrency swap, a 1% TDS will be levied on both the buyer and seller. In addition, some transfers are exempt from TDS, such as transferring cryptocurrency between one's own wallets, receiving cryptocurrency gifts worth less than RS50,000, or receiving cryptocurrency gifts of any amount from immediate family members.

1.3 Crypto Tax

In addition to source deductions, India levies a 30% crypto tax on profits earned from cryptocurrency trading, allowing no deductions beyond costs or loss offsets (Income Tax Act §115BBH). Specific transaction scenarios covered by the crypto tax include: selling cryptocurrency for Indian RS or other fiat currencies; using cryptocurrency for crypto transactions, including stablecoins; using cryptocurrency to pay for goods and services; etc. However, in some cases, cryptocurrency trading profits may be treated as other income by the tax authorities and taxed under a tiered personal income tax rather than the crypto tax, such as receiving cryptocurrency gifts, cryptocurrency mining, paying wages in cryptocurrency, staking rewards, airdrops, etc. If these cryptocurrencies are subsequently sold, traded, or used, the resulting profits may be subject to the 30% crypto tax.

2. Updates on India's Crypto Tax Regulations

2.1 Regulatory agencies

Currently, India does not have a dedicated regulatory body for cryptocurrencies. Instead, it relies on its existing institutional framework, with the Reserve Bank of India (RBI), the Securities and Exchange Commission (SEBI), the Inland Revenue Department (IRD) under the Ministry of Finance, and the Financial Intelligence Unit (FIU) all exercising oversight within their respective jurisdictions. The RBI and SEBI focus on payment systems and security tokens, respectively, while the FIU is primarily responsible for anti-money laundering and reporting obligations. The IRD (mainly the Central Committee for Direct Taxes, CBDT) handles cryptocurrency-related taxation.

2.2 Regulatory Trends and Dynamics

In recent years, India's cryptocurrency tax regulation has evolved from strict restrictions to gradual adjustments. Initially, the RBI adopted a highly cautious approach to cryptocurrencies, issuing a warning about speculative risks in 2013. In 2018, the RBI banned banks from transacting with cryptocurrency companies, attempting to restrict market development through financial means. However, this ban faced strong opposition from industry bodies and market participants, and was ultimately ruled unconstitutional by the Indian Supreme Court in 2020.

In 2022, India's fiscal budget for the first time brought cryptocurrencies and other virtual assets under legal regulation, establishing a series of crypto tax policies, including the TDS and crypto tax mentioned above. This initial establishment of a tax system provided a compliance basis for the industry. In 2025, the new fiscal budget further strengthened the regulation of crypto tax reporting and information disclosure. While it did not fundamentally reform the existing tax system, it imposed new requirements on crypto market participants. The new budget added Section 285BAA to the Income Tax Act, which further expanded the scope of regulation, requiring specific entities to report crypto transactions within specified timeframes; it further expanded the definition of VDAs, including all blockchain-based crypto assets within the tax scope; and it imposed stricter penalties for unreported VDAs, classifying them as "unreported income" and imposing fines of up to 70%, without providing any exemptions or reductions. In short, the 2025 tax reform continued the existing VDA tax system and further strengthened cross-entity information sharing. The relevant regulations will officially take effect in April 2026.

In addition to policy adjustments in tax law, the Indian government has also gradually improved its rules under the Anti-Money Laundering Act (AML) framework, allowing global cryptocurrency exchanges to operate locally and placing them under the constraints of AML and CFT regulations. On March 7, 2023, the Indian Ministry of Finance issued a notice clarifying that activities related to VDA exchange, transfer, issuance, or sale have been incorporated into the regulatory framework of the Prevention of Money Laundering Act (PMLA, 2002). According to this law, service providers (VDA SPs) operating in India (including offshore and onshore) and engaged in cryptocurrency business must register as reporting entities with the Financial Information Service (FIU) and comply with a series of statutory obligations under the AML Act, including reporting and record keeping. At the end of 2023, Binance, along with eight other exchanges, was banned from operating in India due to FIU accusations of non-compliance with the AML Act. After paying a $2.25 million fine and registering as a reporting entity with the FIU, Binance re-entered the Indian market in August 2024.

3. Summary of the incident: High tax burden may be a driving force for tax evasion.

Under India's current crypto tax regime, cryptocurrency traders may be subject to a 1% TDS and a 30% crypto tax (plus surcharges and additional fees) for their crypto asset transactions and transfers. This high tax rate has forced many high-net-worth traders to turn to offshore platforms like Binance, attempting to exploit regulatory loopholes to conceal cryptocurrency profits and evade taxes. However, this large-scale investigation by the Indian tax authorities reveals that such tax evasion opportunities will gradually shrink in the future. In fact, as early as June 2025, the Indian tax authorities sent reminder emails to thousands of individuals engaged in crypto trading who had failed to file tax returns, demanding they correct their filings promptly. Furthermore, Binance's registration with the Financial Intelligence Unit (FIU) in India facilitates tax oversight: based on PMLA requirements, Binance, as a FIU reporting entity, is required to establish customer due diligence and recording processes, improve internal controls, fulfill its obligation to report suspicious transactions, and share information about suspected tax evaders with the tax authorities.

However, from another perspective, information sharing from Binance has opened the door for Indian tax authorities to track previously hidden wallets and transactions, enabling them to effectively track and combat tax evasion. This also means that amid the wave of compliance among crypto companies, represented by leading exchanges, issues such as 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 focus of attention for investors for a long time to come.

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