When you buy through affiliate links in our content, we may earn a commission at no extra cost to you. Learn 
Binance, the world’s largest cryptocurrency exchange, has received an $86 million tax ‘show cause’ notice from India’s Directorate General of Goods and Services Tax Intelligence (DGGI).
The notice was issued by DGGI’s chapter in Ahmedabad, which initiates such notices when suspecting tax rule violations. The allegations against Binance involve the collection of fees from Indian customers trading on its platform, covering the period from July 2017 to March 2024.
While the DGGI has previously targeted Indian crypto exchanges, this marks the first time the regulator has sent a show-cause notice for an international crypto exchange. The DGGI, operating under the Ministry of Finance, is tasked with the collection, collation, and dissemination of intelligence related to the evasion of indirect taxes.
Binance Earned $476M in Fees
Economic Times, citing a source familiar with the situation, reported that Binance allegedly earned over $476 million (40 billion rupees) in transaction fees, which were transferred to Nest Services, a Seychelles-based entity within the Binance Group.
The services provided by Binance fall under the category of Online Information and Database Access or Retrieval Services (OIDAR). These are services delivered through the Internet and received online without any physical interaction with the service provider.
This categorization aims to prevent overseas service providers from having an unfair advantage over domestic providers.
It’s important to note that show-cause notices do not always culminate in financial penalties. For instance, earlier this month, the DGGI withdrew part of its allegations against the tech giant Infosys, based in Bengaluru, after the company challenged the demands.
Meanwhile, the development follows a recent fine of approximately $2.2 million imposed on Binance in June 2024 for offering services to Indian clients without complying with the country’s anti-money laundering regulations.
The fine was issued alongside the Financial Intelligence Unit (FIU) granting Binance approval as a registered entity. Notably, the DGGI’s current investigation operates independently of the FIU.
India to Release a Crypto Policy by September
The Indian government is preparing to release a discussion paper outlining its policy direction on digital assets by September. Ajay Seth, the Economic Affairs Secretary, revealed the news in a recent interview with Moneycontrol.
“The policy stance is to consult relevant stakeholders, come out in the open, and say here is a discussion paper, these are the issues, and then stakeholders will give their views,” Seth explained.
Leading this regulatory deliberation is an inter-ministerial group, including key institutions such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). Seth noted that this group is developing a broader policy for cryptocurrencies, with the discussion paper expected before September.
The RBI has historically voiced concerns about the potential risks to macroeconomic stability posed by cryptocurrencies, whereas SEBI has shown a more receptive attitude towards regulatory oversight of digital assets. Despite the lack of a comprehensive legislative framework, India currently enforces stringent taxation measures on the cryptocurrency sector.
Recent mandates requiring registration with the Financial Intelligence Unit (FIU-IND) reflect a shift towards aligning with global anti-money laundering and counter-terrorism financing standards set by organizations such as the Financial Action Task Force (FATF).
India Maintains Controversial Tax Laws
Notably, in the budget announcement for the fiscal year 2024-2025, India’s Finance Minister Nirmala Sitharaman upheld the current contentious crypto tax regulations.
Despite significant lobbying efforts from the cryptocurrency industry, which provided substantial evidence advocating for a reduction in the tax-deducted-at-source (TDS) policy from 1% to 0.01%, the existing rules remain unchanged.
The cryptocurrency sector had also requested the introduction of progressive taxes on gains instead of the current flat 30% rate and the allowance for losses to offset gains.
Last year, the Delhi-based technology policy think tank Esya Centre published a report highlighting the unintended consequences of India’s crypto regulations.
According to the report, Indian crypto investors have transferred over $3.852 billion (INR 32,000 crore) worth of digital assets to international crypto exchanges since the introduction of the 30% tax on crypto income last year.
The 1% TDS rule has significantly reduced crypto liquidity in India, as high-frequency traders have drastically cut their trading volumes to minimize tax liabilities. Domestic exchanges experienced an 81% drop in trading volumes within four months of the TDS rule’s implementation.
The Esya Centre warned that these policies could negatively impact tax revenues and reduce transaction traceability, undermining the regulations’ primary objectives.
They recommended reducing the TDS from 1% per transaction to 0.1%, aligning it with the securities transaction tax, and adopting progressive taxes on gains instead of the flat 30% tax.
The Bottom Line
Binance has been hit with a $86 million tax show-cause notice from India’s DGGI. The notice concerns fees collected from Indian customers between July 2017 and March 2024, marking the first time the DGGI has targeted an international crypto exchange.
Binance allegedly earned over $476 million in transaction fees, which were transferred to a Seychelles-based entity within the Binance Group.
