India Taxes Binance $86M Upon Reentry to the Country
Binance has not allegedly been submitting routine statements to the Indian Income Tax Department
August 21, 2024 06:18 AM
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TL;DR Binance faces an $86 million tax demand from Indian authorities under the Goods and Services Tax (GST) framework. This comes as the crypto exchange seeks to reestablish its presence in the country, which is marked by a challenging regulatory journey.
Binance Reenters India Amid Regulatory Scrutiny
Binance is making headlines with its reentry into the Indian market. On August 15, 2024, coinciding with India's 78th Independence Day, Binance announced its return.
This reentry follows approval from Indian anti-money laundering (AML) agencies. However, the journey could be smoother. Indian authorities have slapped Binance with an $86 million tax demand under the Goods and Services Tax (GST) framework. This move highlights the complex regulatory landscape Binance must navigate.
The origins of this tax dispute date back to December 2023. India's Financial Intelligence Unit (FIU) issued notices to several offshore crypto exchanges during this period.
These included Binance, KuCoin, Bittrex, Gate.io, and OKX. The issue was whether these exchanges had to register as 'reporting entities' in India.
They were allegedly not submitting routine statements to the Indian Income Tax Department. This regulatory clash led to the removal of Binance's mobile app from the Google Play Store and Apple's App Store in India.
The lack of compliance allowed many Indian users to circumvent the country's tax laws. These laws include the 1% Tax Deducted at Source (TDS) levy and a flat 30% tax on all crypto transactions and digital asset transfers. In an effort to rectify its regulatory standing, Binance has taken several steps.
In April 2024, the exchange paid the FIU a fine of approximately $2.25 million for violating AML regulations. Binance assured Indian authorities it would comply with all required tax reporting processes. The company also committed to robust AML and counter-terrorism financing controls.
Binance's Financial Crimes Compliance Unit
Binance has committed to creating an industry-leading Financial Crimes Compliance unit. This unit aims to assist Indian enforcement agencies in investigating crypto-related crimes.
It also plans to contribute to capacity-building efforts, strengthening the collaborative security aspect of the ecosystem. Binance CEO Richard Teng highlighted the importance of the exchange's registration with FIU-IND. He described it as a critical milestone in their efforts to tailor services to the needs of Indian users.
Broader Implications for Crypto Regulation in India
Binance's reentry into the Indian market comes at a crucial time. The Indian government is deliberating on a sustainable, long-term regulatory framework for the crypto sector.
Implementing the already formulated 30% crypto tax and 1% TDS has significantly impacted trading volumes on local exchanges.
Platforms like CoinDCX and WazirX have recorded a decline of over 90% in their users since late 2023. Authorities are now actively targeting offshore crypto exchanges that have previously operated without registering under India's GST framework.
The Indian GST framework consists of four-tier tax slabs ranging from 5% to 28%. It also includes a unique levy known as 'cess.' Cess is an additional tax imposed on certain goods and services, specifically those related to educational and health sectors.
This cess aims to generate dedicated funds for developing and improving social services in the country. In India's crypto taxation context, authorities are expected to apply a similar cess on top of the standard GST rates levied on foreign crypto exchanges.
This additional tax burden reflects the government's intention to channel resources toward social welfare, even as it seeks to regulate the digital asset ecosystem.
With Binance facing a tax levy, similar demands are expected for other international crypto exchanges. These include Huobi, Kraken, Gate.io, KuCoin, Bitstamp, MEXC Global, Bittrex, and Bitfinex.
However, Binance's compliance with Indian regulations could set a precedent for other global crypto platforms, potentially leading to a more balanced approach to crypto oversight.
'Binance's compliance with Indian regulations could set a precedent for other global crypto platforms to operate in the country.'