Mumbai: The Goods and Services Tax (GST) department has begun an investigation into the activities of cryptocurrency exchange WazirX for allegedly evading Rs 40.5 crore in tax. Late on Thursday evening, the tax department recovered Rs 49.2 crore from the company – the GST owed plus interest and penalties. 

The indirect tax department said that WazirX issued its own cryptocurrency — WRX coins— through Zanmai Labs but did not pay GST on it. The tax department contended that GST of 18% was applicable on these coins. 

Officers of CGST Mumbai East comm'te have detected GST Evasion of Rs 40.5 Cr. on commission of Wazir X Crypto Curre… https://t.co/GU2R52rRdh

— CGST Mumbai Zone (@cgstmumbaizone) 1640886125000

Zanmai Labs, the tax department said, was managing WazirX’s cryptocurrency exchange application in India. Both WazirX and its WRX coins are owned by Binance Investments, a Seychelles-based entity, the tax department said. 

Investigators said that WazirX allowed trading and investment in crypto assets such as Bitcoins in two ways – using Indian rupees or WRX coins. 

In cases where the trader chooses to buy with rupees, a 0.2% commission is charged on the trade. WazirX was paying GST on this, officials found. “But in cases where the trader opts for transaction in WRX coins, the commission charged is 0.1% of trading volume and they were not paying GST on this commission,” the tax department said. 

WazirX and its CEO Nischal Shetty did not respond to questions from ET. 

Like WazirX, all the large crypto exchanges in India have launched their own cryptocurrencies. 

There is currently no clarity on how cryptocurrencies are taxed in India, mainly because of confusion over whether they should be treated as currencies, securities, or some other type of asset. Income tax on returns from various assets ranges from 10% to 35%. GST rates could also depend on how cryptocurrencies are categorised. 

This is not the first time the operations of India’s cryptocurrency firms have been scrutinised by tax authorities. In 2017, investigators asked top executives and promoters of some cryptocurrency exchanges to explain their business models and how much indirect tax — service tax or value-added tax — could be levied. 

The development comes amid continuing ambiguity around cryptocurrency regulations in India. The government is discussing with stakeholders whether cryptocurrencies should be banned entirely or regulated, ET reported on December 11. 

Several finance ministry officials, the RBI, tax departments and investigating agencies including the Financial Intelligence Unit have raised concerns that cryptocurrencies represent a “systemic risk” not just to the country’s security but also to its economy, ET reported. Officials have also raised concerns over how cryptocurrencies are used for “illegitimate, untraceable transactions”. 

Recently, the RBI also raised fresh concerns about stablecoins, saying that any crypto asset pegged to the US dollar or any other fiat currency could undermine the Indian rupee. Almost all Indian cryptocurrency platforms offer stablecoins and some even offer an interest rate—similar to a fixed deposit—of around 12%. Central bank officials have raised these concerns with the government in several recent meetings, ET first reported on December 24.