Outside the world of crypto enthusiasts, few people deal with the complications of “withdrawal,” the process of moving digital assets from a trading platform to an external destination, typically a private wallet.
While no Indian law explicitly prohibits this, most large domestic crypto exchanges either block or actively discourage such transfers, according to a report by The Economic Times.
The reason is straightforward. Indian exchanges fear that crypto pulled out of their platforms can be used to launder money, bypass foreign exchange regulations under FEMA, or facilitate other illegal activities. Exchanges do not want to be in the crosshairs when law enforcement agencies go after offenders.
Binance, however, has taken a strikingly different position.
Binance says no law restricts crypto withdrawals
When asked whether Binance allows free withdrawal by users in India, the exchange’s South Asia spokesperson told The Economic Times that Binance stands advised that there are no requirements set out in legislation, regulations, directives, guidelines, or rules specifying withdrawal limits on virtual digital assets (VDAs) on end users of centralised exchanges.
The spokesperson added that this is consistent with global rules on not impeding the rights of users to access their assets without justification. Restricting access, the official said, would run contrary to the foundational premise of digital assets and financial independence.
This does not mean Binance operates without compliance obligations. The exchange clarified that centralised exchanges must comply with all applicable laws and KYC regulations. Binance is registered with FIU-IND, the Government of India agency responsible for tracking intelligence about money laundering offences. Like domestic platforms, Binance shares data with FIU-IND, including withdrawal information.
On Binance, an Indian user can withdraw crypto worth as much as $8 million. A buyer can place an order on the platform, find a local seller on a peer-to-peer basis, and transfer funds separately through banks once the seller shares account details. The purchased crypto can then be moved into private or unhosted wallets, or stored on the user’s laptop or a hardware wallet similar to a pen drive.
The risk that regulators see
The open withdrawal window is precisely what makes regulators uneasy. Typically, exchanges ask for details when crypto flows into external wallets. But individuals intent on dodging rules, such as the $250,000 annual overseas remittance cap under the Liberalised Remittance Scheme, or entities looking to surreptitiously move money, can use these withdrawal windows to transfer VDAs that are later sold, swapped, and stored overseas, or used to acquire offshore assets.
Harshal Bhuta, partner at the chartered accountancy firm P. R. Bhuta & Co., told The Economic Times that given the increasing use of VDAs in cybercrime for cross-border fund movements and offshore betting, there is a need for either a dedicated legislative framework governing cross-border transfers or for the RBI to recognise cryptos as “currency” under FEMA.
Given the data that FIU-IND collects, the disclosures in tax returns, and the information shared between countries, questionable withdrawal practices may eventually come to light. But by then, as the report notes, it may be too late, and some actors may escape.
Binance warns against “Shadow Requirements”
In one of its most pointed statements, Binance warned that when Indian exchanges adopt what it called “non-prescriptive shadow requirements” as legal requirements, it creates uncertainty for users. The exchange argued that once a user has completed KYC and is being monitored, that user should not be prevented from accessing their verified assets.
Binance stated that its position is consistent with the Financial Action Task Force (FATF) recommendations and regulations in several jurisdictions, including India. The exchange also raised a practical concern: restricting withdrawals could push users towards unlicensed and decentralised platforms where no compliance framework applies at all.
This argument is particularly relevant at a time when the FATF itself has flagged peer-to-peer transfers via self-custody wallets as a key vulnerability in the stablecoin ecosystem. In a March 2026 report, the FATF warned that such transfers can bypass AML controls because they occur without the involvement of regulated intermediaries, even though on-chain activity remains technically traceable.
Comes a day after the Parliamentary Committee hearing
Binance’s assertion arrives at a charged moment. Just one day earlier, on May 20, the exchange’s representatives sat before India’s Parliamentary Standing Committee on Finance during the panel’s 7th sitting on Virtual Digital Assets.
Committee Chairman Bhartruhari Mahtab, speaking to PTI after the session, said that a large number of Indians are investing in crypto and that thousands of crores are flowing out of the country through VDA investments. He described the situation as “very alarming.”
As The Crypto Times reported on May 13, the three exchanges called to testify were ZebPay, Binance, and WazirX. The committee also heard from the Revenue Secretary, the Income Tax Department, and the Secretary of Corporate Affairs during the same session.
The choice of these three exchanges out of the 49 platforms registered with FIU-IND had itself drawn attention, with observers noting that all three were connected through the E-Nugget online gaming app case, where the Enforcement Directorate seized approximately Rs 90 crore in crypto from wallets held across the three platforms.
The split in India’s crypto market
The divergence between Binance’s open-withdrawal stance and the restrictive approach taken by domestic exchanges captures a deeper problem. India’s crypto market is operating in what amounts to a regulatory twilight zone.
The country taxes VDAs aggressively, with a flat 30% tax on all gains under Section 115BBH of the Income Tax Act and a 1% TDS on every qualifying transaction under Section 194S. When surcharges and cess are added, the effective rate can reach 42.7% for top earners.
The 2026 Union Budget added penalties to Section 509 reporting rules, imposing daily fines on exchanges for failing to file data and lump-sum penalties for inaccurate reports.
Yet, there is no dedicated crypto law. No clarity on which regulator oversees the sector. No legal definition of whether crypto is a commodity, a security, or a currency. The RBI remains opposed. A discussion paper on crypto regulation was reportedly shelved again by April 2026 after the RBI blocked it.
India leads the Chainalysis Global Crypto Adoption Index for the third consecutive year, with an estimated 119 million users. Binance alone claims between 5 and 10 crore users in the country.
Experts call for uniform guidelines
Sudhakar Lakshmanaraja, founder of Digital South Trust, told The Economic Times that it is time service providers have uniform guidelines on withdrawal limits, disclosures, user protection, and product-wise taxation.
Purushottam Anand, founder of Crypto Legal, emphasised that any regulation on withdrawals must strike a careful balance between mitigating misuse and preserving users’ right to self-custody. Anand pointed out that imposing cumbersome withdrawal procedures or outright prohibition would compel users to rely entirely on exchange-based custody, and that users in the US and elsewhere have repeatedly sought regulatory support for the right to self-custody.
This is consistent with developments in other jurisdictions. In January 2025, a US Executive Order explicitly affirmed the right to self-custody digital assets and conduct peer-to-peer transactions.
The EU’s Transfer of Funds Regulation now requires exchanges to collect sender and receiver data for all crypto transfers and verify ownership of self-hosted wallets for transfers exceeding EUR 1,000, but it does not ban withdrawals.
What this means going forward
Binance’s position forces a question that Indian regulators have so far avoided answering directly. If no law bans crypto withdrawals, and exchanges are registered with FIU-IND and sharing data with the government, on what legal basis are domestic exchanges restricting user access to their own assets?
The Parliamentary Standing Committee’s ongoing study, titled “A Study on Virtual Digital Assets (VDAs) and Way Forward,” may eventually address this. But as of today, after seven sittings, the committee has not recommended regulation, has not announced legislation, and has not confirmed what approach India will take.
For millions of Indian users, the ground keeps shifting. The one thing that remains clear is that the gap between what is taxed and what is regulated continues to be the defining feature of India’s crypto story.
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