What Exchanges, Investors Need to Know
New Delhi: The Central Board of Direct Taxes (CBDT) has issued a guidance note stating that crypto exchanges and other intermediaries must report all transactions on their platforms to the Income Tax department.
The purpose of the guidance note on crypto asset reporting obligations is to close the information gap created by the ability of such assets to be transferred or held outside the traditional financial system.
It is more procedural in nature while ensuring that crypto transactions are part of a transparent global tax reporting ecosystem.
The note aims to clarify the Reporting obligations of Crypto Asset Service Providers (RCASP) in line with the Crypto Asset Reporting Framework (CARF) jointly developed by the Organization for Economic Co-operation and Development (OECD) and participating countries, including India.
CARF is a global tax transparency framework that enables tax-related information on transactions in crypto assets to be automatically shared on an annual basis with the jurisdictions in which taxpayers reside.
India currently receives information regarding offshore financial transactions of an assessee under its automatic exchange of information with various jurisdictions.
However, since cryptocurrencies are outside the traditional financial system, they have the potential to evade reporting obligations, and hence India’s G20 Presidency in 2023 has given further impetus to CARF implementation. According to the G20 New Delhi declaration, CARF information exchange will begin in 2027.
Here is an explainer of what the CBDT guidance note states for Crypto Asset Service Providers and individuals dealing in such virtual digital assets.
What is a crypto asset?
A crypto asset is defined as a digital representation of value that relies on a cryptographically secure distributed ledger or similar technology to verify and secure transactions and includes cryptocurrencies and cryptography-based tokens. Under income tax laws, RCASPs are allowed to hold Bitcoin, Ether, etc. It must meet reporting and due diligence requirements for ‘relevant crypto assets’, which includes assets.
Are ‘related crypto assets’ legal tender in India?
No. ‘Relevant crypto assets’ are not legal tender in India. Only the Indian rupee issued by the Reserve Bank of India constitutes legal tender.
Who is the reporting Crypto Asset Service Provider (RCASP)?
RCASP refers to any individual or organization that, as a business, provides a service affecting foreign exchange transactions for or on behalf of customers, including acting as counterparty or intermediary for exchange transactions or making available a trading platform.
Why did CBDT issue a guidance note?
The guidance note was issued to help RCASPs, such as crypto exchanges and certain intermediaries, comply with their reporting obligations under the Income Tax Act 2025. The guidance note operationalizes India’s adoption of the OECD’s Crypto Asset Reporting Framework (CARF), which aims to enable automatic sharing of crypto-related tax information between participating jurisdictions. This means that crypto assets will increasingly come under structured reporting and global exchange of information.
What does the guidance note state about disclosures to the Income Tax department?
The primary compliance obligation lies with RCASPs, which must collect, verify and report certain information regarding crypto transactions. RCASPs are required to conduct customer due diligence and determine the tax liability of users; collect prescribed KYC and taxpayer information; maintain records of reportable crypto transactions; and provide annual transaction information on Form 167. On this note, CBDT has established a corporate reporting mechanism under which crypto exchanges become the primary source of information for tax authorities, just as banks and financial institutions currently do under other global reporting standards.
What does this guidance note mean for retail crypto investors?
Since cryptocurrency exchanges will now report transaction information, taxpayers must ensure that their tax returns accurately reflect these transactions. Taxpayers will need to continue reporting crypto income in accordance with IT laws; maintain appropriate records of purchases, sales, transfers and wallet movements; retain change statements and supporting documentation; and ensure that information disclosed on income tax returns is consistent with records available on crypto exchanges.
While there are no additional reporting requirements for taxpayers under this guidance note, the importance of accurate reporting and documentation has increased significantly as tax authorities have greater access to transaction-level information.
