CBDT's crypto asset tax reporting: What it means for exchanges, investors

Objective of guidance note on crypto asset reporting obligations is to bridge the information gap that existed because such assets could be transferred or held outside the traditional financial system

The Central Board of Direct Taxes (CBDT) has issued a guidance note specifying that crypto exchanges and other intermediaries will have to report all transactions on their platforms to the Income Tax department.

The objective of the guidance note on crypto asset reporting obligations is to bridge the information gap that existed because such assets could be transferred or held outside the traditional financial system.

It is more procedural in nature while ensuring that crypto transactions become part of a transparent global tax reporting ecosystem.

The note intends to explain the reporting obligations of Reporting Crypto-Asset Service Providers (RCASP) in line with the Crypto-Asset Reporting Framework (CARF) developed jointly by the Organisation for Economic Cooperation and Development (OECD) and participating countries, including India.

 

The CARF is a global tax transparency framework which provides for the automatic exchange of tax-relevant information on transactions in crypto assets with the jurisdictions of residence of taxpayers on an annual basis.

India currently receives information on offshore financial transactions of an assessee under the automatic exchange of information that it has entered into with several jurisdictions.

However, since cryptos are outside the traditional financial system, it has the potential to escape the reporting obligations and hence India's G20 Presidency in 2023 provided further impetus to CARF implementation. As per G20 New Delhi declaration, CARF information exchange will start by 2027.

Here is an explainer on what the CBDT guidance note specifies for Crypto-Asset Service Providers and individuals transacting 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 secured distributed ledger or a similar technology to validate and secure transactions and includes cryptocurrencies and cryptography-based tokens. Under income tax laws, RCASPs have to fulfil reporting and due diligence requirements for 'relevant crypto assets', which include assets such as Bitcoin, Ether, etc.

Are 'relevant crypto assets' a 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 entity that, as a business, provides a service affecting exchange transactions for or on behalf of customers, including by acting as a counterparty, or as an intermediary, to exchange transactions, or by making available a trading platform.

Why has the CBDT come out with a guidance note?  The guidance note has been issued to help RCASPs, such as crypto exchanges and certain intermediaries, comply with their reporting obligations under the Income-tax Act, 2025. It operationalises India's adoption of the OECD's Crypto-Asset Reporting Framework (CARF), which seeks to enable automatic exchange of crypto-related tax information among participating jurisdictions. This means that crypto assets will increasingly come within the ambit of structured reporting and global information exchange.

What does the guidance note specify regarding disclosures to the Income Tax department?  The primary compliance obligation is on RCASPs, who are required to collect, verify and report specified information relating to crypto transactions. RCASPs are required to undertake customer due diligence and determine the tax residency of users; collect prescribed KYC and taxpayer information; maintain records of reportable crypto transactions; and furnish annual transaction information under Form 167. With this note, CBDT has specified an institutional reporting mechanism whereby crypto exchanges have become the primary source of information for the tax authorities, much like banks and financial institutions currently do under other global reporting standards.

What does this guidance note mean for individual crypto investors?  Since crypto exchanges will now be reporting transaction information, taxpayers should ensure that their own tax disclosures accurately reflect those transactions. Taxpayers would be required to continue reporting crypto income in accordance with I-T law; maintain proper records of purchases, sales, transfers and wallet movements; preserve exchange statements and supporting documentation; and ensure that the information disclosed in their income-tax return is consistent with the records available with crypto exchanges.

While there is no additional filing requirement for taxpayers under this guidance note, the importance of accurate reporting and documentation has increased considerably because tax authorities will have greater access to transaction-level information.