Binance Challenges $86 Million Tax Notice from Indian Authorities

• Binance faces an $86M tax notice from India’s DGGI, marking a challenge for international crypto exchanges.
• Binance’s $476M earnings from Indian customers highlight its substantial market presence despite regulatory hurdles.
• Binance’s compliance issues in India include a $2.2M fine and ongoing investigations, complicating its return to the market.

The Directorate General of Goods and Services Tax Intelligence (DGGI) in India has issued a $86 million tax show cause notice to Binance, the largest cryptocurrency exchange in the world. 

This notice marks an important move as it may be the first show cause notice issued to an international crypto exchange by Indian authorities. The notice, issued last week from Ahmedabad, addresses alleged fee collections from Indian customers between July 2017 and March 2024.

Cooperation with Indian Tax Authorities

Besides, Binance is already cooperating with Indian tax authorities. A spokesperson confirmed the review of the notice details. The Ministry of Finance oversees DGGI, which focuses on indirect tax avoidance. 

Furthermore, Binance was fined $2.2 million in June 2024 for violating India’s anti-money laundering regulations. The Financial Intelligence Unit (FIU) approved the exchange as a registered entity in spite of the penalties. The ongoing DGGI investigation is separate from FIU’s jurisdiction. This recent showcause notice could be a pivotal moment for international exchanges operating in India.

Earnings and Service Classification

Additionally, the notice highlights Binance’s earnings of over $476 million in transaction fees. These fees were reportedly transferred to Nest Services, a Binance Group company based in Seychelles. This revenue from Indian customers highlights the scale of Binance’s operations in the country.

Furthermore, the services provided by Binance fall under Online Information and Database Access or Retrieval Services (OIDAR). These services, delivered online without physical interaction, are categorized to prevent an unfair advantage for overseas service providers over Indian ones. The notice alleges that Binance collected fees for these services from Indian customers.

Potential Outcomes and Future Plans

However, showcause notices do not always lead to monetary penalties. For instance, earlier this month, DGGI dropped part of its allegations against Infosys, a Bengaluru-based tech company. Binance, adhering to relevant domestic legislation, could potentially navigate through this notice without severe financial consequences.

Consequently, Binance faces another hefty payment to Indian regulators. In June, the FIU imposed a $2.25 million fine for the exchange’s failure to register its operations. Despite these challenges, sources indicate that Binance is considering returning to India as a compliant platform.

Binance’s dominance in the Indian market persisted until its ban in January. When India implemented a 30% capital gains tax and a 1% TDS on crypto trades, investors turned to Binance to avoid extra costs.

Initially, Binance entered India by acquiring WazirX, a local crypto exchange. However, it distanced itself when WazirX faced a money laundering investigation by India’s Enforcement Directorate (ED).