Income Tax Department Targets Undisclosed Crypto Profits
The Income Tax Department is investigating over 400 wealthy individuals in India. They allegedly hid crypto profits on Binance, the world’s largest cryptocurrency exchange, between 2022-23 and 2024-25. These individuals reportedly did not declare earnings from trading virtual digital assets (VDAs). Many held significant funds in offshore Binance wallets.
Investigations are led by the Central Board of Direct Taxes (CBDT). Multiple city investigation units must submit reports by October 17, according to sources.
Use of Offshore Binance Wallets to Avoid Taxes
Many high-net-worth traders used foreign exchanges like Binance to avoid India’s high crypto taxes. Besides a 1% tax deducted at source (TDS) on trades, total tax rates can reach 33% to 42%, depending on the tax system.
Siddharth Banwat, a Mumbai-based chartered accountant, said, “The tax department can issue summons to verify income reporting. Taxpayers who did not report income can file updated returns at an additional tax cost.”
Investigators found traders used complex transactions to hide profits. They often bought USDT stablecoins, transferred them to Binance wallets, then swapped for Bitcoin or Ethereum. Many repeated these trades without converting crypto into rupees.
Some traders believed avoiding cash conversions would hide profits from tax authorities. Others used the Liberalised Remittance Scheme (LRS) to legally transfer up to $250,000 annually abroad. However, many failed to disclose these crypto holdings under the Schedule ‘Foreign Assets’ section in tax returns.
Binance’s Registration with FIU Exposes Traders
Many Indian traders assumed Binance’s offshore status shielded their transactions. However, Binance is registered as a “reporting entity” with India’s Financial Intelligence Unit (FIU). The FIU monitors financial transactions for money laundering risks.
This registration allows Binance to share user and transaction data with Indian authorities. It removes the anonymity that offshore crypto wallets once provided.
Investigators are also examining peer-to-peer (P2P) trades on Binance. These trades involved direct crypto exchanges settled via bank transfers, GPay, or cash payments, although cash payments have since been banned.
With exchanges now sharing data, the tax department has better visibility of crypto trading and profit declarations. Virtual digital assets are treated as undisclosed income during searches and classified as property under Section 56(2)(x) of the Income Tax Act.
Investors who fail to report crypto income may face reassessment, penalties under Section 270A, or prosecution under the Black Money Act for undisclosed foreign assets. Ashish Karundia, founder of Ashish Karundia & Co, advised, “This may be the last chance for taxpayers to regularise crypto dealings using updated returns (ITR-U).”
Tax officials also suspect some investors use hawala networks to buy digital assets without banking records. While this information is monitored, it is not yet shared with the Enforcement Directorate (ED), which investigates money laundering.
This crackdown, supported by Binance’s cooperation with the FIU, marks a significant step against unreported offshore crypto wealth in India.
