CBDT issues guidance note on crypto reporting in line with OECD framework

In the note’s foreword, CBDT Chairman Ravi Agrawal said the rapid growth of crypto-assets has brought with it a fresh challenge even as India’s commitment to combating tax evasion and protecting its revenue base has remained steadfast. The note will help RCASPs in understanding and discharging their obligations under the Income-tax Act and Income-tax Rules in a clear and practical manner, he added.

The CARF defines “Crypto-Assets” as “a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions”, which includes cryptocurrencies, as well as cryptography- based tokens.

The framework is expected to bring tax transparency to the crypto-asset sector as it will impose obligations on a new subset of service providers, RCASPs, which are the service providers collecting and reporting information on transactions of crypto-assets. The CARF requires RCASPs to identify their users and to report on specified transactions, with a view to ensuring the annualised reporting of tax-relevant information concerning certain activities in relation to crypto-assets, the note said.

Automatic exchange

Once received by tax authorities, the information will be automatically exchanged with the tax authorities of the jurisdiction(s) of residence of the crypto-asset users, pursuant to an international agreement that provides a legal basis for the automatic exchange of such information for tax purposes, the note added.

The G20 had mandated the OECD to develop a dedicated framework for the automatic exchange of information on crypto-assets.

“India has actively contributed to the development of these standards through its participation in the Global Forum’s CARF Group and the OECD’s Working Party. The obligation to report transactions in crypto-assets is now provided for under section 509 of the Income-tax Act, 2025, with the due diligence and reporting requirements prescribed under the Income-tax Rules, 2026. This guidance note has been prepared to assist RCASPs in understanding and discharging their obligations under the Income-tax Act and Income-tax Rules in a clear and practical manner,” Agrawal said.

Such assets were capable of escaping the reporting obligations that apply to financial institutions under the Foreign Account Tax Compliance Act (FATCA) and, under the Common Reporting Standard (CRS), thereby leaving a gap in the framework of global tax transparency, Prasenjit Singh, Member (Legislation), CBDT said. The Crypto-Asset Reporting Framework (CARF), developed by the OECD at the request of the G20, was conceived to address this gap by providing for the standardised and automatic exchange of tax-relevant information on transactions in crypto-assets between jurisdictions, he said.

Experts said though there is no additional filing requirement for taxpayers under this guidance note, the importance of accurate reporting and documentation has increased considerably because the tax authorities will have greater access to transaction-level information. “Taxpayers should continue reporting crypto income in accordance with the existing provisions of the Income-tax Act; 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,” Amit Agarwal, Senior Partner, Nangia & Co LLP said.

With adoption of CARF, India is aligning its reporting standards with internationally accepted OECD norms, thereby strengthening cross-border exchange of crypto transaction information, Agarwal said. Since the CARF seeks to enable automatic exchange of crypto-related tax information among participating jurisdictions, it would imply greater transparency in tax reporting, he said. “Crypto transactions will increasingly come within the ambit of structured reporting and information exchange, similar to the existing FATCA and CRS framework. There will be better visibility for tax authorities as the objective is to bridge the information gap that existed because crypto-assets could be transferred or held outside the traditional financial system,” he added.