India’s Income Tax Department is investigating cases of tax evasion by crypto exchanges misusing user tokens for their own interest.
Violations by Crypto Exchanges
A report by The Times of India indicates that many exchanges state in their terms that users' tokens can be utilized at the exchange’s discretion, including lending and trading, while users' rights are limited to selling those tokens. To enhance liquidity and profits, these exchanges often lend out cryptocurrencies to other users without notifying the original holders, a practice known as rehypothecation and commingling.
Challenges with Tax Regulation
The investigation has uncovered numerous similar activities, but the lack of a clear legal framework complicates taking action against violators. Tax reports have raised issues regarding tax evasions related to profits generated from cryptocurrencies.
Consequences for Users and Exchanges
According to a source, while individuals evade taxes on profits, a bigger concern is that exchanges are trading the cryptocurrencies parked with them, and profits are not shared with individuals, creating risks for users and a lack of guarantees for their assets.
The investigation by India’s tax department raises significant concerns about the operations of crypto exchanges and the safety of user assets, highlighting the need for regulatory frameworks in the crypto industry.
