- Indian tax authorities target Binance users for not complying with 1% TDS on crypto trades.
- Traders face audits, with some taxed 30% on turnover instead of actual profits.
- India’s crackdown on Binance traders highlights increased scrutiny of offshore exchanges.
The Indian tax authorities have stepped up their inspection of Binance users who trade cryptocurrencies among the largest digital exchange platforms globally. Indian tax authorities directed their action mainly against traders who did not follow the 1% Tax Deducted at Source (TDS) regulations for crypto transactions. The government continues its commitment to offshore crypto exchange regulation through this latest initiative.
Tightened Enforcement of 1% TDS Rule
Transactions related to cryptocurrency in India require payers to withhold 1% tax deducted at source. Many Indian traders choose offshore platforms, including Binance, instead of using Indian exchanges like WazirX or CoinSwitch, as Binance does not implement the mandatory 1% tax deduction. Since Binance operates without Indian registration, it fails to implement TDS tax deductions, which creates substantial financial risks for traders.
Indian tax authorities have been actively identifying users who failed to comply with this rule. In response, traders are now required to provide proof of TDS deduction or submit an explanation for why the tax did not apply to their transactions. These measures underscore the government’s resolve to ensure full tax compliance, regardless of whether the transactions occur on domestic or foreign platforms.
Imposition of 30% Tax on Total Turnover
The application methodology of this tax stands out as an alarming matter to traders. Certain tax authority audits demand a flat 30% tax applied directly to trading volume or turnover instead of profits. The traditional method of taxing profits does not apply in this approach, forcing traders to pay exorbitant tax amounts on their entire trading volume. Implementing a 30% tax on trading volumes leads to a ₹15 lakh tax bill even though the trader’s profits are limited to ₹5 lakh when their total turnover reaches ₹50 lakh.
This method has led to confusion among traders, as it imposes a disproportionate tax burden compared to standard tax practices in India. Many have expressed concern that these actions are punitive measures for non-compliance with the TDS rule rather than a fair assessment of profits earned from cryptocurrency trading.
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Government’s Increased Focus on Offshore Crypto Compliance
The government of India continues to monitor offshore crypto exchanges that actively breach national tax regulations. Binance is under special scrutiny because it operates without registering in India. Through bank data and international intergovernmental agreements, the government tracks cryptocurrency traders who fail to comply with TDS regulations using unregistered platforms.
The Indian tax authorities have stated that noncompliance with tax laws while using foreign currencies for transactions will result in severe penalties. Government officials want to stop tax evasion in the cryptocurrency market through their new approach to enforcement. All traders should exercise extreme caution in their tax compliance duties to prevent facing substantial fines and penalties.
