Penalty recovered from the cryptocurrency Exchanges for Tax evasion in India

Indian Minister of State for Finance, Pankaj Chaudhary informed the Parliament that the government has recovered Rs 95.86 crore from 11 cryptocurrency exchanges on account of tax evasion.

In a big blow to the hopes of Crypto investors in India, it has come to light that the major cryptocurrency exchanges were found guilty of Tax-evasion in India. And this has happened when these crypto ventures are just spreading their wings in India.

Indian Minister of State for Finance, Pankaj Chaudhary informed the Parliament in a written response that the government has recovered Rs 95.86 crore from 11 cryptocurrency exchanges on account of tax evasion, says a news report.

The major defaulters in the list include big names like Zanmai Labs (WazirX), CoinDCX and CoinSwitch Kuber. The tax authorities detected an evasion to the tune of Rs 81.54 crore in Goods and Service Tax (GST). Along with this penalty and interest amount has also been recovered from the cryptocurrency Exchanges found guilty of evading GST.

As per the reply, the largest tax evasion was detected at WazirX a subsidiary company of Zanmai Labs. It is owned by Binance – the biggest Crypto Exchange of the world in terms of market capitalisation. The total amount paid by WazirX is Rs 40.51 crore, followed by CoinDCX which evaded Rs 15.7 crore, and CoinSwitch Kuber which evaded Rs 13.76 crore.

The whole matter surfaced in January this year after the central GST, Mumbai scrutinized the accounts of crypto exchanges. It found a discrepancy in the GST payments amounting Rs. 40.5 crore by Zanmai Labs on the commissions earned.

It was alleged that the Binance subsidiary WazirX has been charging a commission on each crypto transaction from buyer and seller both in its own native crypto coin WRX. But the rate of commission with WRX is 0.1% which is only half of the commission of transactions in INR i.e., 0.2%.

As per the investigation report, WazirX collected revenue from it users via commissions on trading, deposit and withdrawal fees. However, the cryptocurrency company was paying GST only on commissions earned in rupee and not on commission earned in WRX.

The company though said that it had no intention of evading GST and that there was an “ambiguity in the interpretation of one of the components which led to a different calculation of GST paid”.

Coin DCX and CoinSwitchKuber, the two crypto unicorns of India have also paid the penalty and the interest in addition to the due taxes. Coin DCX was also considering an IPO at the same time.

Alongwith the three major ones, the other exchanges to evade tax were Buy Ucoin, Unocoin, Flitpay, Zeb IT Services Pvt Ltd, Secure Bitcoin Traders Pvt Ltd, Giottus Technologies, Awlencan Innovations India Pvt Ltd (ZebPay), and Discidium Internet Labs.

These cryptocurrency exchanges still have the option to challenge before higher judicial authorities, the imposition of the above penalty and tax. It remains to be seen whether they will exercise this option.

Meanwhile, the Indian Government has already tightened the tax norms for cryptocurrency market for the financial year starting April 1, 2022. As per the law,30% tax will be levied on income from all forms of virtual digital assets (VDA), including Cryptocurrency and NFTs. Apart from this, 1% TDS will also be deducted whenever a crypto asset is sold.

Moreover, as reported earlier, the government in India has already announced the ban on allowing losses incurred in a particular digital asset to be set off against income from another version of a crypto holding. Through these actions, the government is sending out signals to the crypto investors as well as general public to be wary of investing in crypto assets which have not approval or sanction from the government.