In a landmark decision, the DGGI Ahmedabad unit has sent a show cause notice to Binance inciting its payment of ₹722 crores under GST which is the world’s largest cryptocurrency exchange. This unimaginable move shows that India is becoming more and more serious about regulating the fast-growing virtual currency market, which means that foreign service providers will be monitored for compliance within its domain.
The notice was triggered by allegations that Binance collected fees from Indian customers for trading in virtual digital assets (VDAs) while failing to register under the Indian GST system. This classification falls under online information database access or retrieval (OIDAR) services, which are subject to GST for foreign entities providing services to Indian residents. This action against Binance sets a significant precedent, as it is the first time DGGI has targeted a cryptocurrency firm for tax compliance.
At the beginning of this year, Binance was allowed by the Financial Intelligence Unit (FIU) of India to trade as a virtual asset service provider (VASP). Nevertheless, it has been fined ₹18 crores for breaching non-compliance with anti-money laundering (AML) regulations led authorities to raise questions about its operational integrity. From a global perspective, Binance is a giant, accounting for nearly 40% of cryptocurrency transactions with more than 150 markets, however, it chose to neglect Indian tax laws, whereupon it faces great consequences in terms of tax evasion.
Sources indicate that Binance has reportedly generated approximately ₹4,000 crore in transaction fees from Indian customers, contributing to its expansive user base of 90 million worldwide. A significant portion of these earnings is said to be routed through a Binance Group company located in the Seychelles, raising further scrutiny regarding tax practices and compliance.
In a bid to address this compliance issue, Binance has appointed local counsel in India to liaise with DGGI. However, the lack of response from Binance’s offshore companies in the Seychelles, the Cayman Islands, and Switzerland has complicated matters. This scenario underscores the complexities surrounding international cryptocurrency exchanges and their adherence to local tax regulations.
Furthermore, the DGGI’s actions are part of a broader strategy to monitor the financial activities of various online platforms, including gaming and e-commerce sites, for potential tax evasion. As India continues to solidify its regulatory framework for cryptocurrencies, other foreign exchanges operating within the country may also face intensified scrutiny from tax authorities, marking a new chapter in the intersection of taxation and digital currencies.
