The ED has sought further details and documents from crypto exchanges as part of its probe in the alleged instances of foreign exchange violations
Earlier, the government had recovered a total of INR 95.86 Cr from 11 leading cryptocurrency exchanges of the country for tax evasion
We receive queries from various government agencies. Our approach has always been that of transparency: CoinSwitch Kuber spokesperson
From tax evasion to several frauds to money laundering, the cryptocurrency ecosystem in India has come under the spotlight for all the wrong reasons in the last few months. While the government and the central bank have already maintained an anti-crypto stance, these incidents have brought the exchanges under the radar of various investigative agencies.
In the latest development, the Enforcement Directorate (ED) has reportedly sought further details and documents from crypto exchanges such as CoinDCX and CoinSwitch Kuber as part of its probe in the alleged instances of foreign exchange violations.
An official at a major crypto exchange told Inc42 that it is not unusual for the exchanges to receive such notices as part of a routine investigation.
Meanwhile, a CoinSwitch Kuber spokesperson said, “We receive queries from various government agencies. Our approach has always been that of transparency. Crypto is an early-stage industry with a lot of potential and we continuously engage with all stakeholders.”
As per industry sources, crypto exchanges are not only being probed by the ED but also the Income Tax Department and the GST Commissionerate. The ED is reportedly examining details on offshore transactions.
The ED had summoned WazirX officials a year ago with regards to crypto transactions worth around INR 2,800 Cr, which the agency alleged were in violation of FEMA rules.
“The matter is pending before the Karnataka High Court where the company and its director filed a writ petition and the court has passed an interim order. We have complied with the order. The matter is subjudice. WazirX is not the only exchange to have received such a summon,” a WazirX spokesperson told Inc42 on the earlier investigation.
GST Commissionerate’s Crack Down On Crypto Exchanges
The GST Commissionerate of Mumbai zone had detected GST evasion of INR 40.5 Cr by WazirX, India’s largest crypto exchange by trading volume, in December 2021. It had also recovered INR 49.20 Cr in cash pertaining to GST evaded, interest and penalty.
“The firm is charging commission on each transaction in cryptocurrency from buyer and seller both. However, the rate of commission is different for both the transactions. The transaction in rupee attracts the commission of 0.2% and transaction in WRX attracts the commission of 0.1%,” the Ministry of Finance said in a statement then.
It alleged that WazirX was paying GST only on commission earned in rupee, not on commission earned in WRX. The ministry also added at that time that CGST department would cover all the crypto exchanges falling in Mumbai zone and intensify the drive in the coming days.
Later in March 2022, Minister of State for Finance Pankaj Chaudhary informed the Parliament that the government had recovered a total of INR 95.86 Cr from 11 leading cryptocurrency exchanges in the country, including CoinDCX, WazirX, CoinSwitch Kuber, and Unocoin.
The Indian government has not made its position clear on cryptocurrencies yet. While the industry expected that imposing tax on crypto income and transactions would legalise it, Finance Minister Nirmala Sitharaman clarified that taxing crypto does not give it legal status.
Crypto Regulation Remains A Grey Area
The Reserve Bank Of India (RBI) has made its reservations about cryptocurrencies clear, with the central bank repeatedly saying that cryptocurrencies are a threat to the Indian economy.
Recently, RBI Governor Shaktikanta Das termed cryptos as a “clear danger”. Earlier, top RBI officials told the Parliamentary Standing Committee on Finance that cryptocurrencies could be used for terror financing, money laundering, and drug trafficking.
During the Budget session of Parliament, Chaudhary also said the government is aware of cybercriminals using cryptocurrency for money laundering.
“Reports have been received from Law Enforcement Agencies (LEAs) in connection with the usage of cryptocurrency by cybercriminals. The Directorate of Enforcement (ED) is investigating 07 cases under PMLA (Prevention of Money Laundering Act), 2002 in which cryptocurrency has been used for money laundering. Cases investigated by ED under PMLA, reveal that the accused have laundered Proceeds of Crime (PoC) through cryptocurrency,” he said.
The ongoing Russia-Ukraine war, rising inflation and policy rates have led to a global economic slowdown and fears of an impending recession. This has also affected cryptocurrencies with their prices falling sharply. Many crypto platforms like Vauld have suspended operations.
The actions of the investigating agency amid the tough economic environment and regulatory challenges will only add to the woes of the crypto exchanges.
