India Updates Tax Reporting Framework to Include Cryptocurrency Assets and Digital Currencies

India's Central Board of Direct Taxes has updated its global tax reporting framework, expanding FATCA and CRS rules to cover specified crypto-assets, CBDCs, and digital money. Financial institutions must implement stricter due diligence for accounts exceeding $1 million. While individual filing requirements remain unchanged, crypto exchanges face mandatory annual reporting starting in 2027 for the 2026 calendar year, backed by daily penalties of Rs 200 for non-compliance.

India crypto tax reporting expansion

• ▪The updated framework expands the implementation rules of the Foreign Account Tax Compliance Act and the Common Reporting Standard in India.
• ▪The Central Board of Direct Taxes expanded India's global tax reporting framework to include specified crypto-assets, central bank digital currencies, and digital money products.

Enhanced verification high-value accounts

• ▪Reporting financial institutions must apply enhanced due diligence and additional review procedures to accounts with balances exceeding $1 million.
• ▪The $1 million threshold for enhanced due diligence is designed to target high-net-worth individuals and entities to combat tax evasion and money laundering.

Impact on individual investors

• ▪Fewer than one-quarter of the 645,000 individuals who conducted cryptocurrency transactions during the financial year ending March 2023 disclosed them in their tax returns.
• ▪The updated tax reporting framework does not introduce any new reporting forms or filing obligations for individual crypto investors.

Financial institution compliance requirements

• ▪Reporting Crypto-Asset Service Providers must identify reportable users, verify their tax residency, and file annual reports of transactions under Section 509 of the Income-tax Act, 2025.
• ▪Failure by crypto exchanges to file required reports can attract a daily penalty of Rs 200, while inaccurate reporting can result in a penalty of up to Rs 50,000.
• ▪Crypto exchanges must submit their first annual reports covering transactions from the 2026 calendar year in 2027 using Form 167.

India crypto regulatory history

• ▪India currently imposes a 30% tax on cryptocurrency gains and a 1% tax deducted at source on transactions.
• ▪The Reserve Bank of India maintains its recommendation that cryptocurrencies and privately issued stablecoins should remain outside the regulated financial system.