Indian tax authorities have launched a sweeping investigation into more than 400 high-net-worth individuals on suspicion of evading taxes by using the global cryptocurrency exchange Binance, signaling a major crackdown on offshore crypto trading.
The Central Board of Direct Taxes (CBDT) believes the traders under scrutiny failed to accurately declare profits made from cryptocurrency transactions between the 2022 and 2024 fiscal years. The agency has issued an internal directive, ordering its regional offices across the country to report on the probe’s progress by December 17.
Binance Compliance Breach Reveals Hidden Trades
The large-scale investigation was triggered by a critical regulatory shift. In August 2024, Binance registered with India’s Financial Intelligence Unit (FIU) as a “Reporting Entity” after paying a $2.25 million penalty for anti-money laundering violations. This move came after the exchange was blocked in India in late 2023 for operating illegally without proper registration.
This registration now legally compels Binance to share comprehensive user transaction data with Indian authorities. This new access has provided tax officials with a clear trail to track previously opaque overseas transactions, effectively lifting the veil on the trading activities of wealthy Indians.
Stringent Crypto Tax Regime Fuels Evasion Attempts
The probe underscores the impact of India’s rigorous crypto tax framework, which is among the strictest in the world. The policy imposes a 1% Tax Deducted at Source (TDS) on every transaction and a flat 30% tax on all crypto profits. For high-income earners, when additional surcharges and a 4% education cess are applied, the effective tax rate can reach a staggering 42.7%.
This heavy tax burden is seen as a key motivator for some wealthy traders to route their transactions through offshore platforms like Binance to avoid declaring income.
The Evasion Method and Broader Crackdown
Authorities are examining a specific method where traders allegedly purchased USDT (a U.S. dollar-pegged stablecoin) and transferred it to Binance wallets via blockchain networks. They would then exchange the USDT for other cryptocurrencies like Bitcoin (BTC), all while failing to report these transactions.
Tax experts confirm that the Income Tax Department holds the power to issue summons to verify income declarations. Violators could face significant penalties and back taxes exceeding their original liability.
This investigation is a key part of the Indian government’s two-pronged strategy: advancing its own digital rupee while simultaneously tightening enforcement against private digital assets. The use of overseas exchanges has long been a popular method for tax avoidance, but Binance’s FIU registration has now given authorities the power to look back in time, marking a new era of accountability for crypto tax evasion in India.
