The Income Tax Department has started tightening its grip on undisclosed crypto profits, targeting over 400 wealthy individuals across India who allegedly hid their digital assets on Binance — the world’s largest cryptocurrency exchange, between 2022-23 and 2024-25.
These individuals, according to sources familiar with the matter, failed to declare profits earned from trading virtual digital assets (VDAs) and parked significant holdings in offshore Binance wallets.
Acting on instructions from the Central Board of Direct Taxes (CBDT), investigation wings in several cities have been asked to submit their reports by October 17, said a person aware of the development.
The Offshore Loophole
A large number of high-net-worth traders turned to foreign exchanges such as Binance to dodge India’s stiff tax regime on cryptocurrencies. Apart from a 1% tax deducted at source (TDS) on every trade, total tax liability on profits can range between 33% and 38%, and even 42% under the old income tax system.
“The tax department is empowered to issue summons to confirm if due reporting is being done while filing 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.
How the Trades Worked
Investigations have found that several traders used multiple layers of transactions to mask their earnings. A typical route involved purchasing USDT, a stablecoin pegged to the US dollar, transferring it to a Binance wallet, and then swapping it for Bitcoin or Ethereum. Many repeated these cycles—buying, selling, and swapping different coins—without ever converting them into rupees.
Because many of these crypto swaps never turned into actual cash, some traders believed they could slip past the tax department’s notice. Others moved money abroad legally under the Liberalised Remittance Scheme (LRS), which allows Indians to invest up to $250,000 a year overseas.
But while the transfers went through proper banking routes, several of these investors didn’t reveal that the funds were used to buy cryptocurrencies — a clear breach of disclosure norms under the Schedule ‘Foreign Assets’ (FA) section in their income tax returns.
Binance’s FIU Link Broke the Shield
Many Indian traders believed they were safe by using Binance, assuming that its offshore status would keep their transactions hidden from the Indian tax net. What they didn’t realise was that Binance had already registered itself as a “reporting entity” with the Financial Intelligence Unit (FIU) of India — the government body that tracks and analyses financial transactions for signs of money laundering.
That registration meant Binance could share user and transaction details with Indian authorities, stripping away the anonymity that once made offshore crypto wallets seem untouchable.
P2P Deals and Cash Payments Under Scrutiny
Investigators are also zeroing in on peer-to-peer (P2P) trades conducted via Binance, where buyers and sellers in India directly exchanged cryptocurrencies while settling payments through domestic bank transfers, GPay, or even cash—a method that was later discontinued.
The secrecy once surrounding virtual digital assets (VDAs) is quickly disappearing. With crypto exchanges now required to share transaction data, the tax department has far greater visibility into who’s trading, how much, and whether those profits have been declared.
Authorities have also tightened their interpretation of the law; VDAs are now considered undisclosed income during searches and recognised as property under Section 56(2)(x) of the Income Tax Act.
Investors should be aware that the scope for hiding crypto income is narrowing. Those who have not reported their crypto transactions may face reassessment, scrutiny, or penalties under Section 270A.
Additionally, failure to declare overseas holdings in Schedule FA could invoke the Black Money Act, which carries significant fines and the risk of prosecution. The department’s push signals that this may be the last opportunity for taxpayers to regularise their crypto dealings before enforcement tightens further.
So, they should undertake a comprehensive reconciliation of their VDA activity and explore corrective mechanisms such as the updated return (ITR-U). Once enforcement actions intensify, there may not be left with too many options,” said Ashish Karundia, founder of CA firm Ashish Karundia & Co.
Informal Channels in the Crosshairs
Tax officials also suspect the use of hawala networks by some investors to purchase digital assets without creating a banking trail. While such information will not immediately be passed on to the Enforcement Directorate (ED), which probes money laundering and forex violations, officials confirmed that the matter is being closely monitored.
The latest move, aided by Binance’s cooperation with the FIU, marks one of the sharpest crackdowns yet on unreported offshore crypto wealth. For India’s crypto elite who once believed they were beyond reach, that illusion is now collapsing fast.
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