India cracks down on wealthy investors over crypto tax evasion

Indian tax authorities have confirmed that they are targeting more than 400 high-net-worth individuals for tax evasion on their digital asset holdings. According to the authorities, most of those targeted failed to disclose profits from their digital assets on the crypto exchange platform Binance.

The authorities claimed that many have failed to disclose digital assets held on offshore exchanges in the hopes that they could escape the tax liabilities attached to them. The Income Tax department is now actively tracing these undeclared trades. In their statement, the department claimed that it is going after users who hid their crypto trades on Binance between 2022-23 and 2024-25. The users identified have evaded tax on their profits, with many failing to disclose the digital assets in their wallets in various exchanges overseas.

Indian tax authorities target crypto tax evaders

According to sources familiar with the matter, an internal communique has been released to this effect. The investigation wing of the Income Tax (I-T) department across different cities has been tasked by the apex body, the Central Board of Direct Taxes (CBDT), to report actions by October 17. According to reports, many traders with high net worth moved their assets to offshore platforms, driven by a belief that they would escape tax on their crypto profits.

Under the old I-T regime, users were expected to pay a total tax on profits on every sale, which could vary from 33% to 38%, or as high as 42%. This is besides the 1% tax dedicated at sources (TDS) on every crypto sale.

“The tax department is empowered to issue a summons to confirm if due reporting is being done while filing the 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 an updated return would be available at an extra tax cost,” said Siddharth Banwat, a Mumbai-based chartered accountant.

In the issue of multi-layered transactions, Indian authorities acknowledge that many digital transactions are carried out on-chain and not sold for cash. This is one of the grey areas of crypto tax evasion, and investors may run the risk of evading taxes without prior knowledge. For example, traders purchase USDT, a stablecoin pegged to the United States dollar, and transfer the digital asset through a blockchain network to their digital wallets on Binance.

Binance to share information after FIU registration

Subsequently, traders exchange the USDT for Bitcoin. USDT is seen as the widely accepted token to purchase other cryptocurrencies. Here, the seller may sell the Bitcoin and use the profits to purchase USDT, which can then be used to purchase other digital assets. Alternatively, residents can use the banking channels to move money from local accounts to an account opened with banks overseas under the liberalized remittance Scheme of the Reserve Bank of India, where they can invest about $250,000 in foreign assets annually.

Investors do not always disclose the end-use of funds to the banks, considering that most banks obtain an undertaking from clients that the funds remitted under LRS will not be invested in digital assets or securities tied to digital assets. Such investors never disclose the overseas crypto holdings under the Schedule ‘Foreign Assets’ (FA) column in the I-T Return form.

While most of them will feel it would go unnoticed, they have forgotten that Binance is required to report to India’s FIU after undergoing registrations with the body. India’s Financial Intelligence Unit (FIU) is the central agency dedicated to collecting and processing information on money laundering deals. The arrangement between the body and Binance also paves the way for the exchange to share information with the Indian government.

Join a premium crypto trading community free for 30 days - normally $100/mo.