India’s Directorate General of Goods and Services Tax Intelligence (DGGI) has issued a show cause notice to Binance, claiming that the cryptocurrency exchange owes $86 million (or Rupees 722 crores) in unpaid Goods and Services Tax (GST). According to the agency, Binance collected fees from Indian users between July 2017 and March 2024 but did not pay any taxes on these transactions.
This development is significant as it marks the first time that the DGGI has taken action against a cryptocurrency exchange. The hefty tax bill faced by Binance is a result of its failure to register with India’s GST framework, which is a mandatory requirement for both domestic and international businesses operating in the country.
A report by the Times of India shed more light on the matter, stating that Binance allegedly earned around Rs 4,000 crore from transaction fees charged to Indian customers. Further investigation revealed that these earnings were credited to the account of a Binance Group Company called Nest Services Limited, which is based in Seychelles.
Binance’s cryptocurrency exchange services fall under the category of Online Information and Database Access or Retrieval Services (OIDAR). This classification aims to ensure that overseas online businesses do not have an unfair advantage over Indian companies. As a result, online service providers like Binance are required to comply with taxation regulations just like any other business operating in India.
Apart from the recent GST notice, Binance has faced other regulatory challenges in India. Earlier this year, the exchange was among several offshore crypto platforms that were banned for failing to register with the FIU-IND, India’s financial intelligence agency. In June, Binance was fined $2.2 million for this violation and for potentially breaching anti-money laundering (AML) laws. However, after resolving the issue, Binance was permitted to register with the FIU-IND and resume its operations in the country.
It is important to note that the current GST notice issued by the DGGI is separate from the previous regulatory actions taken against Binance. The exchange is also dealing with tax violation charges in other countries like Nigeria.
Overall, Binance’s tax woes in India highlight the increasing scrutiny faced by cryptocurrency exchanges as regulators seek to ensure compliance with financial laws and prevent money laundering activities within the digital asset space. As the crypto industry continues to evolve, exchanges like Binance will need to navigate complex regulatory landscapes to maintain their operations and reputation in various jurisdictions.