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India’s Financial Intelligence Unit (FIU) has introduced stricter compliance requirements for cryptocurrency platforms, significantly strengthening identity verification for users across the country.
Under the new rules, regulated cryptocurrency exchanges are required to verify users through live selfie verification and geolocation data during the onboarding process.
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India’s enhanced verification standards target deep fakes and static images
The latest FIU rules take user verification beyond document checks. Exchanges must be used Live selfie verification that requires a dynamic movement, such as blinking the eye or turning the head, to confirm the presence of the user. The move aims to prevent fake images or deepfake attacks by bypassing identity checks.
As the Times of India points out, the platforms should Collect details at Logging, including latitude, longitude, date, timestamp and IP address.
“It should The RE must also ensure that the customer whose credentials are provided at the time of joining is the same person who actually accesses the application and initiates the account creation process in person.”
The framework also expands the documentation requirements. In addition to the Permanent Account Number (PAN), users must provide a secondary form of identification. This may include a passport, an Aadhaar card (a unique 12-digit identification number issued by the Indian government), or a voter ID card.
Additionally, email addresses and mobile phone numbers will be verified for a one-time password (OTP) to ensure accuracy. The penny exchange method, which involves a small and usually refundable bank transaction of one rupee, also confirms that the user owns the account provided.
It is worth noting that users classified as high risk will be subject to enhanced and more frequent compliance checks under the new FIU rules. This includes individuals associated with tax havens, areas on the Financial Action Task Force (FATF) gray or black lists, politically exposed persons (PEPs), or non-profit entities.
Specifically, the KYC details of these users will be updated every six months, compared to an annual update for regular users. Exchanges are also required to apply due diligence Enhanced obligation.
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Beyond the onboarding process, IU takes a hard stance on identity-enhancing tools (such as blenders/tumblers and similar products) used to hide transaction traces. In addition, the guidelines “firmly darken” Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs).
According to the regulator, such activities pose “growing and complex” risks of money laundering and terrorist financing. It is seen as a lack Economic justification Clear and justified.
A strict tax regime pushes users to offshore platforms
In addition to closer supervision, India imposes taxes on cryptocurrency profits At a flat rate of 30%. Each transaction also incurs a tax deduction of 1% at source (TDS). Analysts have stated that this fiscal framework “It’s up to you“, arguing that it discourages local business activity and encourages users to switch to offshore platforms.
“If we summarize in one line – the tax framework, which was implemented and applied non-uniformly among the industry participants – it led to a remarkable migration of users and liquidity towards offshore platforms,” ​​he revealed. a report .
According to the report’s estimates, Indian users generated around Rs 4,87,799 crore in trading volume on offshore exchanges between October 2024 and October 2025. This equates to around $54.1 billion.
In comparison, the total foreign trade activity attributable to Indian nationals was Rs 2,63,406 crore ($29.2 billion) in the previous year. This represents an increase of 85% year on year.
The report noted that 91.5% of Indian cryptocurrency trading now takes place offshore, while only 8.5% remains on locally registered exchanges.
“The total TDS not required from October 2024 is ₹ 4,877 crore. If calculated from the filing date, this number rises to ₹ 1,000 crore,” the analysts pointed out. “Talking about capital flight and loss of capital gains collections to the government, we conservatively estimate the revenue loss to the exchequer at around ₹ 36,000 crore from the implementation of the 30% tax.
imposes increased compliance requirements Tight taxes are a challenge For the digital currency industry in India. While the new KYC rules aim to promote transparency and prevent crime, higher tax rates push users away, reducing revenue. The balance between oversight and local participation remains uncertain, with the cryptocurrency industry at a crucial crossroads.
