On Binance P2P, when an Indian buyer purchases crypto, the legal responsibility to withhold TDS falls on the buyer themselves — not on Binance, and not on the seller. The logic behind Section 194S of the Indian Income Tax Act is this: in P2P transactions, there is no exchange acting as an intermediary to withhold tax. When the buyer pays rupees to the seller, the buyer is required to deduct 1% TDS from the payment and later file and deposit it with the tax authorities. Binance, as an offshore platform, has not historically withheld and deposited TDS automatically the way Indian domestic exchanges do. This is one of the key reasons why Indian tax authorities have been intensively scrutinizing Binance users in recent years.
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What Actually Happens When You Buy on P2P
You place an order on Binance P2P to buy USDT and send rupees to the seller via UPI or bank transfer. According to Indian tax law, the "full amount" of this transfer should have included 1% TDS. In practice, the vast majority of P2P buyers transfer the full amount shown in the order without proactively deducting that 1%. The problem is that the law places the withholding obligation on the buyer, and the platform does not withhold it for you. That 1% gap therefore remains on the buyer's side.
A third-party guide from 2026 claimed that after registering with the FIU, Binance had started "automatically deducting TDS from the seller's USDT." However, this conflicts with reporting from mainstream Indian financial media and professional tax organizations. Reports from The Economic Times and TaxGuru clearly state that for P2P transactions by Indian users on offshore exchanges (including Binance), the buyer bears the withholding obligation, and this rule is often ignored. On the core question of who is responsible for withholding, the provisions of Indian tax law and the enforcement position of the tax authorities should be the basis for judgment. That guide's claim lacks support from official Indian sources and should not be relied upon for decision-making.
Who Actually Bears the Cost
The legal obligation to withhold belongs to the buyer, but who ultimately bears the economic cost depends on how the two parties negotiate the price. If the buyer pays the full amount without withholding TDS, it appears on the surface that the seller received the full payment and the buyer did not "lose" anything at that moment. But when tax authorities investigate, they will come after the person who had the withholding obligation. If the buyer did not withhold and did not deposit, they may face additional tax, interest, and penalties. Conversely, if the buyer strictly follows the rules and withholds 1% at the time of payment, the seller will receive 1% less — whether the seller accepts this depends on whether the P2P quote already factors in this implicit cost.
So "who withholds TDS" and "who ultimately bears the cost" are two separate questions. The withholding obligation lies with the buyer, while the cost burden is distributed between the two parties through pricing and negotiation. When you buy USDT on Binance P2P, the quote you see is usually set by the seller. Understanding this helps you assess the actual cost you will end up paying.
The Consequences of Not Withholding TDS Are No Longer Just Theoretical
The Indian Income Tax Department has significantly intensified scrutiny of Binance users since 2025. Tax notices require traders to provide proof that TDS has been withheld and deposited, or explain why TDS does not apply. Some notices have even applied a 30% tax rate on the total transaction amount rather than on profits, a penalty far more severe than simply paying the missing 1%. This means that if you have long ignored TDS after buying on Binance P2P, the risk is not "you might be caught" — it is already being systematically cross-checked and pursued.
If you have transaction records on Binance P2P, a verification step you can take now is to log in to the Indian Income Tax e-filing portal and check whether there are corresponding TDS records in your AIS (Annual Information Statement). If TDS on your P2P purchases was never withheld and reported, there will be no such credit in the AIS. You will need to calculate the 1% TDS amount due based on your transaction history, deposit it through Form 141 (Schedule D), and handle it correctly when filing your income tax return. Binance will not issue you a TDS certificate for P2P transactions. You will need to obtain your transaction records yourself through the account export function.
A Boundary Worth Noting
Binance's compliance status in India is evolving. The platform has registered with the Indian FIU, but registration itself does not mean it has automatically completed TDS withholding for every P2P transaction. Based on publicly available tax enforcement reports, the situation as of 2025 remains: Indian domestic exchanges withhold and deposit TDS, while P2P transactions on offshore platforms rely on buyers to fulfill their obligations on their own. If you see any claim that "Binance has already automatically deducted TDS," first check whether it is supported by official documents from the Indian tax authorities rather than relying on third-party blogs or community posts.
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References
- TaxGuru·India's Tax Crackdown on Crypto Traders Using Offshore Exchanges，2026-11-01
- The Economic Times·Crypto traders dodging TDS via Binance under I-T lens，2026-11-01
- ET CFO·Crypto traders dodging TDS via Binance under I-T lens，2026-11-01
- KoinX·Does Binance Report to the Income Tax Department in India?，2026-11-01
