• India issues a Show Cause Notice to Binance and eight other crypto exchanges for failure to comply with the provisions of the Prevention of Money Laundering Act (PML) Act, 2002.

• This comes after India imposed a 1 percent Tax Deduction at Source (TDS) on transactions exceeding $600. 

Binance faces another regulatory challenge as the Director of the Financial Intelligence Unit in India (FIU IND) has written to the Ministry of Electronics and Information Technology to issue Show Cause Notices to the exchange. According to the report, the company failed to comply with the provisions of the Prevention of Money Laundering Act (PML) Act, 2002. 

Binance and Eight Other Exchanges Affected

The letter instructed the authorities to block the URLs of Binance and eight other Virtual Digital Asset Service Providers (VDA SPs) operating within the region. The exchanges that would be affected in this exercise are Binance, Kraken, Bitfinex, Bittrex, Gate.io, Kucoin, Huobi, Bitstamp, and MEXC Global.

It is important to note that all exchanges are required to register with the FIU IND and follow all the laid down rules and regulations. 

Virtual Digital Asset Service Providers (VDA SPs) operating in India (both offshore and onshore) and engaged in activities like exchange between virtual digital assets and fiat currencies, transfer of virtual digital assets, safekeeping or administration of virtual digital assets or instruments enabling control over virtual digital assets, etc. are required to be registered with FIU IND as Reporting Entity and comply with the set of obligations as mandated under Prevention of Money Laundering Act (PMLA) 2002.

As of press time, 31 crypto exchanges have so far registered with the FIU IND. Interestingly, several exchanges have not been “getting registered and coming under the Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) framework.”

India’s Imposed Crypto TDS

India’s recent decisions regarding the crypto ecosystem have been said to be strict by some market participants as the country was also reported to have introduced a stringent crypto tax system for investors. A bill passed by India’s financial ministry demands that transactions exceeding $600 should be subjected to a 1 percent Tax Deduction at Source (TDS). On top of that, a 30 percent tax would be deducted from profits from all crypto sales and trades. This decision has forced most crypto users to move their assets offshore with other market participants calling for a reduction of the TDS from 1 percent to 0.01 percent. 

Punit Agarwal, the founder of KoinX, a firm that provides crypto tax management solutions in India explained the taxation and gave some advice to taxpayers.

Income Tax portal matches the transactions appearing in AIS and the data filed by users. In-case the authorities find any discrepancies, then they issue a notification to the user to re-check if they have missed anything or if everything is in-line. For people, if they find any discrepancies in their income reported vs income generated, then they have to file a revised return. Also, they need to give an explanation to the notification. In case everything is in line and as expected, people can just submit the feedback mentioning they confirm everything is fine.

Binance recently reached a $4 billion settlement with the US Justice Department. This conclusion was reached after the exchange was accused of failing to register as a “money transmitting business, and the International Emergency Economic Powers Act (IEEPA).”