India has issued comprehensive rules for reporting cryptocurrency transactions, aligning domestic oversight with global standards and enhancing tax transparency. The Central Board of Direct Taxes (CBDT) has notified the Crypto-Asset Reporting Framework (CARF), based on the OECD’s system, to standardise data collection and cross-border information sharing without imposing new taxes on digital assets.
Expanded reporting and due diligence for platforms
Under the Income-tax Act, 2025, and Income-tax Rules, 2026, crypto-assets have been brought within the ambit of the Common Reporting Standard (CRS), enabling automatic exchange of information with partner jurisdictions. Reporting obligations apply to “relevant crypto-assets,” excluding central bank digital currencies (CBDCs), certain e-money products, and digital items not used for investment or payments. The government reiterated that cryptocurrencies are not legal tender in India; only the Indian Rupee holds that status.
Data collection began on 1 January 2026, with the first exchange of crypto-related tax information with participating countries slated for April 2027, covering transactions undertaken during calendar year 2026.
Exchanges, brokers, custodians, and other reporting service providers must perform enhanced customer due diligence. They are required to obtain users’ Permanent Account Number (PAN) or Taxpayer Identification Number (TIN), verify tax residency, and keep Know Your Customer (KYC) information current. Where accounts are operated via agents or intermediaries, platforms must identify the beneficial owner of the assets.
Transfers to self-hosted (unhosted) wallets must be recorded with relevant wallet addresses. Additionally, if a platform facilitates a retail crypto payment exceeding USD 50,000 to a merchant while acting on behalf of a customer, that transaction must be reported separately.
Penalties and reporting hierarchy
To reinforce compliance, the Union Budget 2026 introduced revised penalties under Section 446 of the Income-tax Act, effective 1 April 2026. Failure to submit mandated transaction information may attract a penalty of ₹200 per day of delay. A separate penalty of ₹50,000 may apply for furnishing incorrect details, not rectifying errors, or failing to complete prescribed customer verification.
The CBDT has also set a reporting hierarchy to prevent duplicate submissions across jurisdictions, specifying which country bears primary responsibility for reporting a given transaction.
These measures do not alter existing tax provisions for virtual digital assets. Gains from cryptocurrency continue to be taxed at 30% under Section 115BBH, and the 1% Tax Deducted at Source (TDS) under Section 194S remains applicable to eligible transfers.
Implications for investors and traders
While tax rates remain unchanged, the new framework significantly enhances the Income Tax Department’s visibility into crypto activity. A key consideration for active traders is the gap between gross transaction value and actual profit. Since exchanges report the full value of each sale, frequent buy-sell activity using the same capital can inflate aggregate reported volumes relative to net gains.
Substantial differences between exchange-reported transaction values and income declared in the Income Tax Return (ITR) may trigger scrutiny. Taxpayers could be asked to reconcile reported figures with disclosures in Schedule VDA.
Authorities are expected to use blockchain analytics, data from registered exchanges, and other financial records to detect under-reporting. Experts advise maintaining comprehensive records, including trade histories across Indian and foreign platforms, and reconciling these with Form 26AS and Schedule VDA while filing returns. Documenting fair market value at acquisition and disposal can help substantiate computations if queries arise.
Investors who identify errors or omissions in past filings may consider revising or updating returns, where permissible, before receiving any notice from the department. With international exchanges of crypto tax information beginning in 2027, the CBDT’s guidelines represent a significant move towards stronger oversight and improved compliance in India’s evolving digital asset market.
