Crypto Traders: These days there is a lot of news about Crypto currency. Earnings have also increased due to this. Therefore, Indians have also started participating in its trading. But, they did not know that the income tax officials were also keeping an eye on them. Now the news has come that many Indians who trade on the world’s largest crypto exchange Binance have now come under the radar of tax officials.

What are IT officials looking for?

For the past few weeks, Income Tax (I-T) department officials have been investigating whether the 1% tax deducted at source (TDS) levied on such transactions has been deducted or not. The tax office has issued a notice (Income Tax Notice) asking local investors for proof of TDS deduction or documents proving why TDS is not applicable to them. This means that the government wants to see whether people investing in crypto are paying taxes or not.

Where did the money come from

The Income Tax Department is also investigating where these crypto traders got their money from. The authorities have sought I-T returns from such traders for the years when the funds used to buy crypto were earned. Some of the Income Tax Department notices have raised questions on transaction data downloaded from the websites of foreign exchanges.

If the Income Tax Department expands the scope of its investigation in this matter, it could affect many Indians who have transferred their crypto holdings to foreign platforms like Binance in the last two years.
Some NRIs (Non-Resident Indians) or people settled abroad have also transferred their crypto assets from local exchanges to foreign exchanges and private wallets.

This had to happen

Vikram Subburaj, founder and CEO of crypto currency exchange Giottus, says, “This was bound to happen. Foreign exchanges that do not comply with TDS requirements are putting Indian traders in trouble. If you want to serve investors in India, you must respect and follow the laws of the country.

Most transactions are peer-to-peer

Most of the transactions done by Indians on Binance are peer-to-peer (P2P) deals. In this, the platform matches buyers and sellers who transact locally in rupees. However, traders here sometimes inadvertently and often deliberately ignore the rule that the buyer has to deduct TDS on direct P2P deals and foreign exchanges. Unlike trades on domestic platforms, where exchanges deduct TDS and deposit it with the government, this is not the case here.

Why is the Income Tax Department active

For over a year, local exchanges have tightened coin withdrawal rules due to fears of money laundering. Once crypto is withdrawn to a local wallet, a trader can do practically anything with the coin. One can shift them to a private wallet or sell them abroad or swap them for other coins. Such trades, apart from violating rules on foreign exchange control, also raise concerns about the use of crypto for illegal activities. This means that the government is keeping a close watch on the use of crypto to ensure no wrongdoing takes place.