India adds ‘crypto’ assets, CBDCs to tax reporting guidelines

India has revised its international tax reporting guidance to cover certain digital currencies, central bank digital currencies (CBDCs), and digital money products, while also generally tightening due diligence for financial institutions, according to a report on August 4 from the local outlet The Economic Times.

The move marks the country’s implementation of the Crypto-Asset Reporting Framework (CARF)—an international standard for tax reporting and information sharing—within India’s existing automatic exchange of information regime.

The revised guidance was reportedly issued by the Central Board of Direct Taxes (CBDT) and affects India’s Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) implementation rules.

The new guidance lays down a compliance framework for reporting financial institutions (RFIs), including banks, mutual funds, insurers, custodians, and other investment entities, on identifying reportable accounts, validating tax residency, and reporting financial information under the country’s Automatic Exchange of Information (AEOI) commitments.

It also introduces tighter due diligence obligations for reporting financial institutions. Specifically, institutions are required to apply enhanced due diligence to high-value accounts with balances exceeding $1 million, and this calls for additional review procedures before such accounts are classified for reporting.

Further, the framework provides updated procedures for validating tax residency and identifying reportable accounts across financial institutions covered by FATCA and CRS obligations.

While the guidance focuses on tax reporting requirements, it also places digital currency-related products alongside traditional financial assets that already fall under international information-sharing rules, bringing India’s reporting framework closer to the Organisation for Economic Co-operation and Development (OECD)’s CARF, a global tax transparency initiative designed to set a standard for tax reporting and improve the exchange of information between countries on digital asset transactions, to combat tax evasion and avoidance.

India was, until recently, one of five countries identified by the OECD—a global institution that promotes policies to improve world trade and economic progress—that had not yet committed to implementing CARF.

Countries getting in line with CARF

CARF was developed by the OECD between 2021 and 2022 and formally approved by the OECD Committee on Fiscal Affairs in August 2022.