Binance, the world’s largest cryptocurrency exchange, faced a ban from the Indian government due to its lax adherence to regulatory frameworks, including the Prevention of Money Laundering Act (PMLA) and the taxation framework for virtual digital assets (VDA). However, after agreeing to pay a hefty penalty of approximately $2 million, Binance is now set to make a comeback in the Indian market under the oversight of the Finance Ministry’s Financial Intelligence Unit (FIU).
Compliance
With the latest development, Binance has committed to complying with the existing regulatory frameworks in India, following in the footsteps of other exchanges like KuCoin. The Seychelles-headquartered exchange has even gone as far as announcing the deduction of 1% TDS on each cryptocurrency transaction initiated by users on its platform. This move signals Binance’s determination to operate within the legal boundaries of the Indian cryptocurrency ecosystem.
Previously, Binance held a significant market share of around 90% of the estimated $4 billion in cryptocurrency holdings among Indian residents. However, after the implementation of the 1% TDS on cryptocurrency trading in July 2022, Indian exchanges experienced a steep decline in trading volume, with traders turning to offshore exchanges like Binance. Despite initial reluctance to expand into India due to the high taxation environment, Binance founder Changpeng Zhao (CZ) acknowledged that the exchange’s services remained accessible to Indian residents.
In the later part of 2023, the FIU issued a show cause notice to nine exchanges, including Binance, for illegally operating in India. This led to the recommendation to the Ministry of Electronics and Information Technology to block access to these exchanges’ websites, resulting in Google and Apple removing their apps. The Ministry of Finance has clarified that registration and compliance obligations do not require physical operations in India, emphasizing that all entities engaging in virtual asset transactions must adhere to regulatory mandates such as reporting and record-keeping under PMLA.
Binance’s return to the Indian market marks a significant shift in its approach towards compliance and regulatory requirements. By agreeing to pay a hefty penalty and committing to operating within the legal boundaries of the Indian cryptocurrency ecosystem, Binance is taking proactive steps to regain the trust of Indian authorities and users alike. It remains to be seen how this new chapter will unfold for Binance in the Indian market and whether it can reclaim its once dominant position in the region.