Behind the Tax Investigation of Hundreds of Binance Users

Recently, the Indian tax authorities are investigating over 400 high-net-worth individuals trading on Binance, who are suspected of evading the substantial taxes imposed on Crypto Assets transactions from 2022-23 to 2024-25. India imposes a 1% withholding tax and a 30% profit tax on Crypto Assets traders, with an effective tax rate potentially reaching 42.7%, making the high tax rates one of the motivations for this group to evade taxes. This investigation stems from a series of developments regarding Binance 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 enabled 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, city tax authorities have been requested to report their investigative actions by October 17, 2025.

The investigation initiated by the Central Board of Direct Taxes (CBDT) in India examines the trading records, settlement details, and wallet flow of certain Binance users for the fiscal years 2022 to 2023 and 2024 to 2025, as well as the settlements made through local Indian bank accounts or third-party payment applications in Binance P2P trading. If these traders are found to have failed to fulfill their necessary reporting obligations, it may trigger a reassessment process and impose penalties under Section 270A of the Indian Income Tax Act. If crypto assets are obtained from foreign platforms or wallets without proper disclosure obligations, penalties may be imposed under India's Anti-Money Laundering Act.

As for how the tax evasion incident involving Binance users was triggered and discovered, we must focus on India's encryption tax system and regulatory framework— the high cryptocurrency tax rates, stringent tax reporting requirements, and the existing loopholes in the encryption regulatory system have created motivations and opportunities for users to evade taxes, while increasingly smooth channels for sharing transaction information have greatly facilitated the tracking of these tax evasion actions by the Indian tax authorities.

1. Overview of India's Crypto Tax System

1.1 Overview

Since 2022, India has classified crypto assets as Virtual Digital Assets (VDAs) under its Income Tax Act, implementing a strict tax regime: withholding tax and crypto tax are the main types of taxes involved with crypto assets, with a 1% withholding tax (TDS) applicable to each crypto asset transfer, and a fixed tax rate of 30% applicable to crypto capital gains, along with additional taxes and surcharges. After comprehensive calculations, the effective tax rate borne by high-net-worth traders may reach as high as 42%.

1.2 Source Deduction Tax

According to the Indian Income Tax Act, traders are required to pay a 1% Tax Deducted at Source (TDS) on the transfer of crypto assets. If the transfer transaction is conducted 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 overseas exchange, the buyer is responsible for deducting the TDS. If the transaction involves the exchange of crypto assets, a 1% TDS will be levied on both the buyer and the seller. Additionally, certain transfer activities may be exempt from TDS, such as transferring crypto assets between one's own wallets, receiving crypto asset gifts valued at less than RS50,000, or receiving any amount of crypto asset gifts from direct relatives.

1.3 encryption tax

In addition to withholding taxes at the source, India also imposes a 30% crypto tax on profits earned from trading crypto assets, with no deductions allowed for any expenses other than costs, and losses cannot be offset (Income Tax Act §115BBH). The specific trading scenarios covered by the crypto tax include: selling crypto assets for Indian RS or other fiat currencies; using crypto assets for crypto transactions, including stablecoins; paying for goods and services with crypto assets; etc. However, in some cases, profits from crypto asset trading may be regarded by the tax authorities as other income, subject to personal income tax based on slabs rather than the crypto tax, such as receiving crypto asset gifts, crypto asset mining, paying salaries in crypto assets, staking rewards, airdrops, etc. If these crypto assets are subsequently sold, traded, or used, a 30% crypto tax may apply to the profits obtained from such actions.

2. India Crypto Taxation Regulatory Dynamics

2.1 regulatory authorities

Currently, India has not established a dedicated regulatory agency for crypto regulation, but relies on the existing institutional framework, with the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the tax authority under the Ministry of Finance, and the Financial Intelligence Unit (FIU) implementing regulation within their respective responsibilities. The RBI and SEBI keep an eye on payment systems and tokenized securities regarding Crypto Assets, while the FIU is mainly responsible for anti-money laundering and reporting obligations, and the tax authority (mainly the Central Board of Direct Taxes, CBDT) is responsible for tax matters related to Crypto Assets.

2.2 Regulatory Trends and Dynamics

In recent years, India's regulation of Crypto Assets taxation has undergone an evolution from strict limitations to gradual adjustments. In the early days, the RBI maintained a highly cautious attitude towards Crypto Assets and issued a notice in 2013 warning of speculative risks; in 2018, the RBI prohibited banks from trading with Crypto Assets companies in an attempt to restrict market development through financial means. However, this ban faced strong opposition from industry organizations and market participants, and was finally ruled unconstitutional by the Supreme Court of India in 2020.

In 2022, India's fiscal budget proposal for the first time brought Crypto Assets and other virtual assets under legal regulation, establishing a series of crypto tax policies, including the previously mentioned TDS and crypto tax. This preliminary establishment of the tax system provided a compliance basis for the industry. In 2025, the introduction of the new fiscal budget proposal further strengthened the regulation regarding crypto tax reporting and information disclosure. Although it did not fundamentally reform the existing tax system, it imposed new requirements on participants in the crypto market. The new fiscal budget proposal added Section 285BAA to the Income Tax Act, further expanding the scope of regulation, requiring specific institutions to report crypto transactions within specified time limits; it also further expanded the definition of VDA, bringing all blockchain-based Crypto Assets into the scope of taxation; it implemented stricter penalties for unreported VDA, classifying them as “unreported income” and imposing fines of up to 70%, without providing any exemptions or reduction policies. In short, the tax reform of 2025 continued the existing VDA tax system and further strengthened information sharing among parties. The relevant provisions will officially come into effect in April 2026.

In addition to policy adjustments regarding tax laws, the Indian government is gradually improving regulations under the anti-money laundering (AML) framework, allowing global cryptocurrency exchanges to operate locally after registration, and placing them under the constraints of AML and counter-terrorist financing (CFT) regulations. On March 7, 2023, the Indian Ministry of Finance announced that activities related to VDA exchanges, transfers, issuance, or sales have been incorporated into the regulatory framework of the Prevention of Money Laundering Act (PMLA, the Prevention of Money Laundering Act, 2002). According to this law, service providers (VDA SP) operating and engaging in cryptocurrency business in India (including offshore and onshore) must register with the FIU as reporting entities and comply with a series of legal obligations stipulated by the AML law, including reporting and record-keeping. At the end of 2023, Binance was banned from operating in India along with eight other exchanges due to accusations from the FIU of not complying with the provisions of the AML law. After paying a fine of $2.25 million and registering with the FIU as a 'reporting entity', Binance re-entered the Indian market only in August 2024.

3. Event Summary: High Tax Burden May Become a Motive for Tax Evasion

Under the current cryptocurrency tax regime in India, cryptocurrency traders may need to pay 1% TDS and 30% crypto tax (along with additional taxes and fees) for transactions and transfers of crypto assets. Such high tax rates have forced many high-net-worth traders to turn to offshore platforms like Binance, attempting to exploit regulatory loopholes to hide cryptocurrency profits and evade taxes. However, the recent large-scale investigation by the Indian tax authorities reveals that such tax evasion opportunities will gradually diminish in the future. In fact, as early as June 2025, the Indian tax authorities sent reminder emails to thousands of violators engaged in crypto trading who had not reported taxes as required, asking them to correct their tax filings in a timely manner. Additionally, Binance's registration with the Indian Financial Intelligence Unit (FIU) facilitates regulatory oversight for tax authorities: based on the requirements of PMLA, 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 tax authorities.

However, from another perspective, the information sharing from Binance has opened a convenient door for the Indian tax authorities to track previously hidden wallets and transactions, enabling them to effectively monitor and combat tax evasion activities. This also means that under the compliance wave represented by leading exchanges, the issues of tax evasion and even money laundering concerning crypto assets will face greater exposure risks. How to protect one's crypto wealth in a compliant manner may become the focus of investors' attention for a long time to come.