Crypto Exchanges Set for Possible Re-entry into India After Regulatory Crackdown
Seven major cryptocurrency exchanges are set to re-enter the Indian market after being previously blocked for non-compliance with India's Prevention of Money Laundering Act (PMLA). According to a September 12 report, the Indian Financial Intelligence Unit (FIU) will soon hear appeals from these exchanges, which were forced to halt operations in the country late last year.
The exchanges, including Bitfinex, MEXC Global, Kraken, Huobi, Gate.io, and Bitstamp, are seeking regulatory clearance to resume their services in India. The FIU hearing, scheduled for this week, will determine whether the exchanges can re-establish operations, having been restricted due to non-compliance with anti-money laundering (AML) regulations.
In December 2022, the FIU issued compliance notices to these exchanges, along with Binance and KuCoin, for operating in India without proper adherence to the nation's AML policies. This move followed the Finance Ministry's March 2023 directive, mandating all Virtual Digital Asset Service Providers to register with Indian authorities to continue operations. As a part of the crackdown, URLs and apps associated with these platforms were blocked across major app stores.
By the time of the enforcement, 28 domestic cryptocurrency firms, such as CoinDCX and WazirX, had already complied with the registration requirements. The foreign exchanges, however, are now pushing to re-enter the market by aligning with local laws. This involves conducting thorough customer due diligence, adhering to know-your-customer (KYC) norms, and ensuring strict AML compliance.
In addition to meeting these regulatory requirements, the exchanges will also be required to relocate their servers to India and maintain robust reporting practices for suspicious transactions. Detailed records must be kept to meet the FIU's expectations. The exchanges also face significant financial penalties for their previous non-compliant operations, with fines to be determined based on each exchange’s submission during the hearing.
Officials suggest that even if the exchanges comply, it may take some time before they are allowed to fully resume operations. Beyond the penalties for regulatory breaches, the exchanges collectively owe the Indian government approximately INR 2,900 crore in goods and services tax (GST). This outstanding amount must be cleared before the ban can be lifted.
The GST authority also plans to issue notices to other exchanges that operated in India previously but have not yet faced formal action.
While Binance and KuCoin have already secured FIU approval to operate in India, paying fines of $2.25 million and $41,000, respectively, most of the foreign exchanges remain in regulatory limbo. As India moves towards greater regulation of the crypto sector, there remains no legal framework for the use of cryptocurrencies as legal tender. However, the country currently enforces a 1% tax deducted at source (TDS) on every crypto transaction and a 30% capital gains tax on profits generated from cryptocurrency trading.
The upcoming FIU hearing could mark a crucial turning point for cryptocurrency exchanges seeking to restore their presence in one of the world's largest markets, but full compliance and the clearing of tax liabilities will be pivotal in determining their future in India.