India’s tax authorities are targeting over 400 high-net-worth individuals for evading taxes on their cryptocurrency profits from Binance. Many failed to disclose digital assets held on the offshore exchange, believing they could escape the substantial tax liabilities. The Income Tax department is now actively tracing these undeclared trades.
More than 400 well-heeled individuals across India will be pulled up by the tax authorities for hiding their crypto trades on Binance, the world’s largest cryptocurrency exchange, between 2022-23 and 2024-25.
The persons identified had evaded tax on their crypto profits, with many not disclosing the digital coins parked in wallets with the overseas exchange.
In an internal communique, the investigation wing of the Income tax (I-T) department in different cities have been asked by the apex body Central Board of Direct Taxes (CBDT) to report their actions by October 17, a person familiar with the matter told ET.
Many high net-worth traders used offshore platforms like Binance, driven by a mistaken belief that they would escape the crippling tax on crypto profits. Besides a 1% tax deducted at source (TDS) on every crypto sale, the total tax on profits could vary from 33% to 38%, or as high as 42% under the old I-T regime.
“The tax department is empowered to issue summons to confirm if due reporting is being done while filing return of income by the taxpayer. If taxpayers had taken an aggressive position and not reported the income, the option to rectify through filing of updated return would be available at an extra tax cost,” said Siddharth Banwat, a Mumbai-based chartered accountant.
A trader in India can buy USDT, a stable coin pegged to the US dollar, transfer the virtual digit asset (VDA) using the decentralised blockchain network to an electronic purse opened with Binance, and subsequently sell or swap the USDT to acquire Bitcoin. USDT is universally considered a common medium to buy other cryptocurrencies. Here, the trader may sell the Bitcoin (purchased with USDT) and use the profits to again buy USDT which can then be exchanged for another crypto, say Etherium. There can be several layers of such transactions. Since in many trades cryptos are swapped for other coins and not encashed, an ill-advised investor may risk treading the grey zone to evade tax.
Alternatively, a resident individual can use the banking channels – move money from his local bank account to an account opened with an overseas bank under the Reserve bank of India’s liberalised remittance scheme (LRS) which allows investments of upto $250,000 a year in foreign assets like properties and listed stocks.
Often, investors do not disclose the end-use of funds to their banks since several banks obtain an undertaking from clients that the funds remitted under LRS would not be invested in cryptos or even in securities with cryptos as underlier. Such investors never disclose the overseas crypto holdings under the Schedule ‘Foreign Assets’ (FA) column in the I-T Return form.
While they felt the trades would go unnoticed, they ignored the consequence of Binance registering itself as a ‘reporting entity with India’s Financial Intelligence Unit (FIU), the central agency dedicated to collect and process information on money laundering deals. This arrangement paved the way for Binance to share information with the Indian government.
Significantly, the tax office investigators would also look into the peer-to-peer trades (P2P) on the Binance platform that matched a buyer and seller in India and settle the payment using domestic bank accounts, G-pay or even cash. The cash option was later discontinued.
“Clearly, the veil of anonymity that once shielded VDAs is falling apart. With transactional data from crypto exchanges now feeding into the broader compliance framework, the tax department is better equipped to identify mismatches and trace unreported income. Additionally, the inclusion of VDAs in the ambit of ‘undisclosed income’ during search proceedings and classification as ‘property’ under Section 56(2)(x) marks a firm regulatory pivot. Taxpayers engaged in crypto transactions must now exercise heightened diligence. Failure to report VDAs accurately may trigger reassessment or scrutiny, with potential penalties under Section 270A. More critically, omission from Schedule FA could attract the harsh Black Money Act, hefty fines and even prosecution. So, they should undertake a comprehensive reconciliation of their VDA activity and explore corrective mechanisms such as the updated return (ITR-U). Once enforcement actions intensifies, there may not be left with too many options,” said Ashish Karundia, founder of the CA firm Ashish Karundia & Co.
