India to recover $345m in taxes from Kraken, Huobi, and other offshore exchanges

India’s Financial Intelligence Unit aims to collect at least $345 million in GST from seven foreign cryptocurrency exchanges operating in the country.

Sources familiar with the matter told the Economic Times that India’s anti-money laundering agency is ready to hear petitions from Bitfinex, MEXC Global, Kraken, Huobi, Gate.io, Bittrex and Bitstamp exchanges that were banned from providing services following show-cause notices issued by the regulator.

The hearing will be held later this week where these companies will present their requests to continue operating in India by demonstrating their willingness to comply with India’s Prevention of Money Laundering Act as a notifying entity.

Compliance challenges and GST liabilities loom large

As a reporting entity, these exchanges are required to conduct rigorous customer due diligence processes and report suspicious activity, but simply complying with these requirements will not be enough to secure a re-entry into one of the world’s fastest-growing crypto economies, which ranks first on Chainalysis’ 2024 Global Crypto Adoption Index, indicating the increasing use of centralized exchanges.

The exchanges will also have to pay a fine, the amount of which will be determined based on their filings with the regulator, the source added. The regulator is also expected to collect around ₹ 2,900 crore (roughly $345.09 million) in GST from the seven trading platforms.

GST is a comprehensive indirect tax levied on the production, sale and consumption of goods and services across India. Any foreign entity operating within the borders of India is required to register under the GST framework and pay the applicable tax while providing services to Indian customers.

The FIU calculates the remaining liabilities based on the transaction fees these platforms collected from their Indian customers before the December ban, as seen in the case of Binance. Binance was required to pay $86 million in pending GST after completing the registration process and paid a $2.25 million fine to continue operating.

Additionally, according to the source, GST authorities are considering sending notices to other foreign cryptocurrency exchanges operating in India, ensuring that all entities meet their tax obligations and comply with India’s regulatory standards.

However, the source noted that even if they agree to meet all regulatory demands, clarify penalties, and adhere to strict compliance measures, it “could take some time” for exchanges to be allowed to continue operating. According to a previous report by Crypto.news, this process could extend until March 2025.