For years, crypto trades and the digital asset space itself operated in what many describe as a regulatory no-man’s land. An investor in Mumbai could open an account on an exchange in any offshore financial hub with a flexible regulatory and tax regime, freely trade digital assets, and remain largely beyond the visibility of Indian authorities.
The Union budget of 2026 seeks to change that. Through a series of legislative changes introduced across the budgets of 2025 and 2026, India has operationalized a reporting framework aligned with the OECD’s Crypto-Asset Reporting Framework (CARF), aiming to move crypto from an opaque asset class into a transparent financial instrument integrated with the global tax reporting system.
For investors, this means offshore crypto holdings and transactions will increasingly become visible to tax authorities through automatic cross-border data sharing.
The development comes against the backdrop of India’s crypto tax regime introduced in the Union budget 2022 that imposed a 30% tax on gains from virtual digital assets and a 1% tax deducted at source (TDS) on transactions. The high tax and compliance burden is nudging many traders to shift activity offshore, making cross-border reporting frameworks increasingly important.
How the space used to be
Before these regulations, the reporting structure for crypto was fragmented and voluntary. While Indian exchanges followed basic know your customer (KYC) and anti-money laundering (AML) protocols, there was no formal mechanism for an automatic exchange of information between countries.
Sonu Jain, a Mumbai-based chartered accountant explains the fundamental challenge of that era: "Crypto is borderless by definition... An Indian investor can open an account with a Cayman Islands crypto exchange, and the Indian government will never come to know about it, because there is no agreement between these two countries."
It was essentially a game of ‘catch me if you can’. If taxpayers didn't voluntarily disclose their foreign crypto holdings, the government had few tools to verify those assets. This gap led to the conceptualization of CARF during the G20 Summit held in India in 2022, rooted in the idea that if crypto moves across borders, tax data must move with it.
For India, the transition began with the budget of 2025, which introduced Section 285BAA (in the income tax law). This was the ‘framework’ of the law, and it enabled the government to collect information on crypto transactions but lacked the specific rules and procedures to make it work.
Budget 2026 filled this in. It introduced a structured framework under Section 509 of the Income-tax Act, 2025—the modern successor to the 1961 Act. This new section, along with amendments to the Income-tax Rules, officially operationalized CARF in India.
Sumit Gupta, cofounder of CoinDCX, notes the significance of the move. “The amendments appear to be aligned with the broader objective of implementing the reporting principles envisaged under OECD's CARF..." he said. "This framework establishes reporting, due diligence, and correction obligations for designated reporting entities.”
The new mechanics
To understand how the system has changed, one must look at the technical overhaul of the Income-tax Rules, specifically Rules 114F, 114G, and 114H.
These changes redefine what is 'reportable' and who is responsible, said Harshal Bhuta, partner at P. R. Bhuta & Co. CAs.
Firstly, the definition of financial assets has been expanded to include crypto and its derivatives, meaning futures and options linked to digital assets are now explicitly covered. Central Bank Digital Currencies (CBDCs) have also been formally classified as reportable, with accounts holding them treated as depository accounts. E-wallets—defined as digital representations of fiat currency such as prepaid cards or wallets—will be reportable if their 90-day rolling average balance exceeds $10,000. Further, any entity located in India that provides crypto-to-fiat or crypto-to-crypto exchange services will now be classified as a reporting financial institution (RFI).
And reporting is no longer just about the balance. The RFIs must now report whether an account is jointly held and detail the specific role of each controlling person. Finally, to avoid double-counting, gross proceeds reported under CARF do not need to be repeated under traditional rules.
The government has also aligned crypto due diligence with PMLA (Prevention of Money Laundering Act) standards. This ensures that the ‘controlling persons’ behind an account are identified with the same rigor applied to traditional bank accounts.
Another notable change is that in the new system, an Indian exchange will not just report on Indians, but all its accounts. As chartered accountant Jain clarifies, “If I am an Indian crypto exchange, I will report details of all of my clients, whether they are Indian, Singaporean, or American... I will report everything to the Indian tax authorities, who will then forward it to the respective tax regulators of those countries.”
Conversely, foreign exchanges in CARF-participating nations such as the EU states, the UK, Canada, Australia, Japan, Brazil, South Africa, Singapore, and Switzerland will send data on Indian users to India. This creates a circular web of accountability.
The only major outlier as of now is the US, as it is not yet a signatory to the CARF exchange mechanism. But it’s not that all US exchanges will be outside the framework, as it has Fatca (Foreign Account Tax Compliance Act) along with the Inter-Governmental Agreement, which will allow Indian authorities to obtain data on a reciprocal basis.
“It is possible that exchanges like Kraken and Coinbase may not be liable to report transactions under Fatca as of now, thereby hampering the ability of Indian authorities to obtain trading data," Jain said. “Until the US amends Fatca to include its domestic exchanges as reporting entities, this vacuum will continue to exist."
The United Arab Emirates (UAE) has been very proactive in sharing data with Indian authorities. Last year, many Indian investors got tax notices for real estate acquired in Dubai and the UAE without an official remittance route through authorized dealer (AD) banks, Jain added.
What it means for taxpayers
For the average crypto investor, the ‘user experience’ of taxation is about to become much more structured and difficult to evade. Users will now need to provide self-certification and this includes sharing their name, address, tax identification number (TIN), and date of birth. Failure to provide this could result in account restrictions or penalties.
It is important to note that if one holds crypto on a foreign exchange that is not disclosed in Schedule FA (Foreign Assets) of your tax return, the risk of detection is now significantly high.
Data received by the income tax department won't just sit in a database. It will be used to cross-verify schedule VDA (virtual digital assets) in the income tax return (ITR). If the data from the exchange doesn't match with the reported details, an automated notice is likely to follow.
“With the Income Tax (Amendment) Rules, 2026 mandating data collection from 1 January 2026, the department will now use this data to cross-verify disclosures in Schedule VDA in the tax returns," Bhuta said. "Further, as jurisdictions across the world begin CARF-compliant exchanges of crypto-asset information, any offshore crypto holdings (particularly on non-FIU-registered exchanges such as Kraken) that are not disclosed in Schedule FA may trigger proceedings under the Black Money Act.”
With these changes, crypto investments in India are set to move towards transparency, where digital assets are treated with the same fiscal seriousness as stocks, bonds and bank deposits.