The Indian Financial Intelligence Unit (FIU) has launched a crackdown to collect $345 million in GST from these foreign exchanges for failing to pay taxes under Indian laws. The affected platforms include Kraken, Bitfinex, MEXC Global, Huobi, Gate.io, Bittrex, and Bitstamp, which were previously banned from providing cryptocurrency services in India.
As part of the regulatory process, these exchanges must now prove compliance with Indian financial laws, specifically the Prevention of Money Laundering Act (PMLA).
Foreign Exchanges Face Regulatory Hurdles in India
According to the Economic Times , a hearing will soon be held to decide whether these exchanges can resume operations in India. The exchanges must provide evidence of compliance with the PMLA and confirm their willingness to fulfill reporting obligations under Indian law.
However, simply complying with these requirements does not guarantee their return to the Indian crypto market. The exchanges will also be required to pay fines, the amount of which will be determined during the hearing.
The FIU is seeking to recover around ₹2,900 crore (equivalent to $345 million) in GST arrears. The Indian government is aiming to recover these taxes because the exchanges did not pay GST on fees charged to Indian customers before they were banned from the country.
Earlier this year, the FIU asked Binance to pay $86 million in GST and a fine of $2.25 million to resume operations in India.
Foreign exchanges must comply with the same GST rules as Indian companies, meaning they must register with India’s GST system and pay taxes on services provided to Indian customers, just like local exchanges do.
Strong Crypto Adoption in India and the Future of Foreign Exchanges
Despite regulatory hurdles, India remains a leader in global crypto adoption. According to Chainalysis’ 2024 Index , India ranks first among 154 countries in crypto adoption, despite high taxes, including a 30% capital gains tax and a 1% withholding tax.
India’s crypto ecosystem continues to thrive despite the challenges, thanks to activity on centralized exchanges, DeFi platforms, and peer-to-peer trading. However, the introduction of strict tax measures in recent years has led some investors to turn to international exchanges, where tax requirements are often less stringent.
In response, Indian authorities have begun considering issuing notices to other foreign exchanges to ensure comprehensive tax compliance in the sector.
In September, it was reported that the FIU had reviewed registration applications from four additional foreign crypto exchanges, with two of them expected to receive approval to operate in India by the end of fiscal year 2025.