Indian traders who are using Binance, the world’s largest crypto exchange, to skip the payment of Tax Deduction at Source (TDS) should be aware that they are under the glare of the Indian Income Tax department. In the past few weeks, the Income Tax Department has started an investigation to collect the details of whether the traders have paid the 1% TDS on such deals or not.
Local investors are required to either present proof of TDS deduction or provide documents explaining why TDS does not apply to them, as stated in notices issued by the tax office. Investigating the source of traders’ funds, the department has requested their income tax returns for the years in which the money used to buy cryptocurrencies was earned.
The department also looked at the records of crypto trades on a foreign website where these traders bought and sold their cryptocurrencies. But in some cases, the department has sent the notices to some traders saying they’re not just taxing the profit. Instead, they’re charging a 30% tax on the total amount of money involved in the trades (called “turnover”).Â
This confuses people because India taxes only crypto gains (profit) at 30%, not the entire trade. The department is being extra strict, possibly because they suspect some people didn’t report their money or trades correctly, especially since the trades happened on a foreign platform.
Vikram Subburaj, founder & CEO of Giottus, a domestic cryptocurrency exchange, said that “overseas exchanges that bypass the TDS requirements are putting Indian traders in a difficult position. You should respect and adhere to the local laws if you wish to serve investors in India.”
As per the reports, this initiative that is taken by the IT department will impact all the Indian traders, including non-resident Indians (NRI) who have settled in foreign countries and have transferred their cryptocurrencies from local exchanges to foreign exchanges over the past two years.
Many people in India use Binance to buy and sell cryptocurrencies, like Bitcoin, Ethereum, etc. A lot of these trades happen through “peer-to-peer” (P2P) deals. Binance connects a buyer and a seller, and they complete the deal directly with each other.
However, on Indian platforms (like WazirX or CoinSwitch), the platform itself takes care of deducting this 1% TDS, and the firm itself sends the deducted amount to the government, so the buyer doesn’t have to worry about it.
The problem with Binance is that many Indian traders sometimes, by mistake and sometimes on purpose, ignore or don’t obey this TDS rule. When they purchase crypto in a P2P deal or on a foreign exchange, they fail to deduct the 1% tax, despite being required to do so. However, as per the government rules in India, both sides of a foreign exchange crypto swap must pay the 1% TDS, which increases their tax liability.
To avoid illegal activities like money laundering, for over a year, Indian crypto exchanges have implemented stricter rules on withdrawing cryptocurrencies from their platforms. The problem is that these actions can break rules about foreign exchange controls in India.
Due to the difficulty in tracking the money once it leaves the Indian exchange, many traders may use it for illegal purposes such as buying drugs or funding other crimes. The trader can also use crypto to trade them for privacy coins like Monero or Zcash.Â
Also Read: Binance Lists Gunz Coin: Check $GUN Live Price Here
