The Central Board of Direct Taxes (CBDT) in India has issued comprehensive guidance to operationalize the Crypto-Asset Reporting Framework (CARF). This move integrates India into a standardized global tax transparency system for cryptocurrency transactions, significantly enhancing reporting and due diligence for crypto exchanges and other service providers.
While the framework does not introduce new tax obligations for individual investors, it marks a critical step in aligning India's crypto reporting regime with international standards, ensuring greater visibility for tax authorities into crypto assets that can often be transferred outside traditional financial systems.
What is the Crypto-Asset Reporting Framework (CARF)?
Developed by the Organisation for Economic Co-operation and Development (OECD) alongside G20 countries, CARF is a global initiative designed to improve tax transparency for crypto assets. It addresses the challenge of tracking cross-border crypto transactions, which historically lacked the regulatory visibility of conventional financial assets.
Operating similarly to the Common Reporting Standard (CRS) for offshore financial accounts, CARF enables participating countries to automatically exchange information on crypto transactions. Under this framework, crypto exchanges and other Reporting Crypto-Asset Service Providers (RCASPs) will collect user and transaction data, report it to their domestic tax authorities, who can then automatically share this information with other jurisdictions. India has adopted CARF through the Income-tax Act, 2025.
New Reporting Requirements for Crypto Exchanges
The guidance introduces a standardized reporting system. According to Vimal Sagar Tiwari, Co-founder of CoinSwitch, RCASPs must now identify reportable users, ascertain their tax residency, conduct specific due diligence, and report designated crypto transactions via Form 167. This necessitates exchanges building robust systems capable of collecting, verifying, and consistently reporting tax-relevant information.
Edul Patel, CEO of Mudrex, added that exchanges are also required to collect prescribed KYC and taxpayer information, maintain detailed records of reportable transactions, and file annual reports with the Income Tax Department through Form 167. Certain qualifying retail payment transactions involving crypto assets will also fall under these reporting obligations.
Enhanced Customer Due Diligence
The new framework expands compliance obligations beyond standard KYC (Know Your Customer) and anti-money laundering (AML) checks. Exchanges will now need to gather tax self-certifications from users, validate customer information, and identify controlling persons in specific entity structures. The emphasis shifts from basic identity verification to ensuring the completeness, accuracy, and audit-readiness of information for regulatory reporting.
Patel highlighted that crypto platforms will transition towards an ongoing compliance model, continuously determining users' tax residency, categorizing transactions under reporting rules, and updating records. This brings crypto platforms closer to the stringent compliance standards observed in traditional banking and financial institutions.
Penalties for Non-Compliance
The reporting obligations under CARF are backed by statutory penalties. Tiwari noted that Section 446 of the Income-tax Act, 2025, outlines penalties for RCASPs that fail to furnish prescribed information or submit inaccurate data, making compliance a top governance priority.
Failure to provide the required statement can incur a penalty of ₹200 per day. Furthermore, furnishing inaccurate information that is not corrected may lead to a ₹50,000 penalty under the Income-tax Act, 2025.
What CARF Means for Crypto Investors
Crucially, the CBDT's guidance note does not impose any new tax or filing obligations on individual investors. However, with exchanges now reporting transaction-level data, tax authorities will gain significantly greater visibility into crypto activities.
Both CoinSwitch and Mudrex advise investors to maintain comprehensive records of all crypto purchases, sales, and transfers between wallets. It is now more vital than ever to reconcile these personal records with exchange statements before filing tax returns and to ensure that all disclosures accurately reflect crypto income. While minor discrepancies may not automatically trigger a tax notice, significant mismatches between exchange-reported information and an investor's tax return could prompt further verification by the Income Tax Department.