On 24 July 2026 the Central Board of Direct Taxes released a 198-page Guidance Note on crypto-asset reporting obligations. It is a serious, carefully drafted document, and it marks the moment India formally operationalized the OECD’s Crypto-Asset Reporting Framework (CARF) through section 509 of the Income-tax Act, 2025, Rules 241 to 244 of the Income-tax Rules, 2026, and the new Form 167. Reporting Crypto-Asset Service Providers (RCASPs) must now collect due-diligence information on every user for calendar year 2026 and file their first statements by 31 May 2027, with penalties under section 446 of Rs. 200 a day for late filing and Rs. 50,000 for inaccurate information or failed due diligence.
Yet the most revealing sentence in the entire document is in its disclaimer, on the very first page: “Nothing in this Guidance Note & FAQs shall be construed as affecting the permissibility or otherwise, or the legitimacy or otherwise of the transactions in crypto-assets. Further, nothing in the Guidance Note & FAQs shall be construed as a regulation in respect of transactions in crypto-assets.
That is the paradox in a single paragraph. India has built a world-class apparatus for seeing crypto transactions, while the substantive law that decides what those transactions are, how they are taxed in the hard cases, and who regulates the market, remains incomplete. This article examines both halves of that picture.
What the Government has accepted, and accepted quickly
India’s commitment to CARF is not a reluctant one. The Guidance Note traces the lineage with some pride: the G20 mandate to the OECD, the Bali endorsement in November 2022, and then the New Delhi Leaders’ Declaration of September 2023 under India’s own Presidency, which called for “swift implementation” and set the aspiration of first exchanges by 2027. India sits on the OECD’s Working Party 10 and on the Global Forum’s CARF Group, with the FT&TR Division of CBDT acting as Competent Authority.
The OECD’s 2025 Monitoring and Implementation Update confirms the scale of what India has joined. As of 28 November 2025, 75 jurisdictions had made a political commitment to implement CARF, 58 had signed the joint statement targeting 2027 exchanges, and 53 had signed the CARF Multilateral Competent Authority Agreement. The Global Forum’s own guidance says domestic law for 2027 exchangers “should be in effect from the start of 2026.” India met that timeline: the reporting period under Rule 243 is “each relevant calendar year starting on or after the 1st January, 2026.”
The statutory transplant is faithful to the OECD text. The definition of “crypto-asset” in section 2(111)(d) of the 2025 Act (“a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions”) is lifted verbatim from CARF. The exclusions for Central Bank Digital Currencies and Specified Electronic Money Products, the four-tier nexus rules for where an RCASP reports, the self-certification and reasonableness-check regime, the aggregation rules, the treatment of airdrops and retail payment transactions: all of it mirrors the OECD Commentary, which the Guidance Note cites throughout. On the exchange-of-information front, India has done exactly what was asked of it, on time and to specification.
What the Income-tax Act itself still does not do
The difficulty is that CARF is an information framework. It tells the tax authority what happened. It says nothing about what the tax consequence should be. For that, one must turn to the substantive provisions of the Income-tax Act, and here the picture is far thinner than the 198 pages of reporting guidance would suggest.
The charging provisions are a blunt instrument, not a code. India’s substantive crypto tax law consists essentially of the framework introduced by the Finance Act 2022 and carried into the 2025 Act: a flat 30 per cent rate on income from transfer of a virtual digital asset (the old section 115BBH), a denial of every deduction except cost of acquisition, an absolute bar on setting off VDA losses against any income, including gains on other VDAs, no carry-forward of losses, a 1 per cent withholding on transfers (the old section 194S), and taxation of VDA gifts under the deemed-income provisions. Budget 2026 left all of this untouched. These are rate-and-collection rules. They do not constitute a coherent scheme for computing income from a novel asset class.
The Act never says what a crypto-asset is for tax purposes. Is it a capital asset, stock-in-trade, currency, a commodity, or a species of intangible property? The 2022 amendments deliberately side-stepped this by creating a standalone “VDA” bucket and a flat rate, so that characterisation would not matter for the rate. But characterisation matters for everything else: whether the head of income is capital gains or business, whether indexation or holding-period concepts could ever apply, how the situs of a token is determined for a non-resident under the deeming provisions of section 9, and whether a crypto-to-crypto swap is a “transfer” at all when no fiat changes hands. The Guidance Note answers the last question comprehensively for reporting purposes (a Crypto-to-Crypto exchange is a Relevant Transaction reported at fair market value), but the substantive Act is silent on the valuation method a taxpayer must use to compute income on that same swap.
Whole categories of on-chain activity are unaddressed. The Guidance Note discusses airdrops, staking-related transfers, wallet-to-wallet movements, non-fungible tokens, stablecoins, and “decentralised” services that match buyers and sellers, because the RCASP must know whether to report them. The Income-tax Act has no corresponding provision on how staking rewards, mining income, liquidity-pool yields, wrapped or bridged tokens, hard forks, or token-based lending are to be characterised or timed. Are staking rewards income on receipt at market value, and if so under which head, given that the 30 per cent rate is triggered only on transfer? Is a wrapped token a new asset with a fresh cost base? Does mining produce business income with deductible electricity and hardware costs, or VDA income with none? Practitioners answer these questions by analogy, and the answers differ from adviser to adviser. That is not a comprehensive law.
The two regimes now define the same thing differently. Under CARF, and therefore under Rule 241, a stablecoin that qualifies as a Specified Electronic Money Product is treated as fiat currency and is not a Relevant Crypto-Asset at all. Under the charging provisions, the same stablecoin is a VDA, and every conversion of it is a taxable transfer at 30 per cent with no set-off. A single asset is simultaneously “money” for reporting and a “virtual digital asset” for taxation within the same statute. The 2025 Act added the CARF definition as clause (d) of the VDA definition, which means the reporting definition has been nested inside the taxing definition, but the two were never reconciled.
The reporting law was built faster than the law it reports into. Section 285BAA of the 1961 Act, the predecessor of section 509, was inserted by the Finance Act 2025 with effect from 1 April 2026. The reporting period, however, runs from 1 January 2026. RCASPs are therefore required to report transactions from a quarter in which no domestic obligation to perform due diligence yet existed. This is a small point in practice, since most exchanges collect KYC anyway, but it illustrates the pattern: the international timetable drove the legislation, and the domestic framework was retrofitted around it.
Withholding on offshore platforms remains largely theoretical. The 1 per cent TDS operates well on domestic exchanges and poorly everywhere else. Evidence before the Parliamentary Standing Committee on Finance suggests that a very large share of Indian trading volume has migrated to offshore platforms. CARF may, from 2027, deliver information on those users through automatic exchange, which is precisely why the Government moved so quickly on it. But information about a transaction on a foreign platform does not fix a withholding mechanism that never reached that platform in the first place.
Beyond the tax statute: a market without a regulator
Step outside the Income-tax Act and the gap widens into a vacuum. India has no dedicated crypto statute. The Cryptocurrency and Regulation of Official Digital Currency Bill, listed for Parliament in 2021, was never introduced. The Supreme Court’s 2020 decision in IAMAI v. RBI struck down the banking ban, but nothing was legislated in its place. The only regulatory hook of substance is the March 2023 notification bringing virtual digital asset service providers within the Prevention of Money Laundering Act and requiring registration with FIU-IND, which is an anti-money-laundering measure, not a market-conduct or investor-protection regime.
The Department of Economic Affairs has announced a discussion paper on VDAs repeatedly since September 2024 and has deferred it each time, most recently, according to reporting in April 2026, because of Reserve Bank opposition. The RBI’s position before the Standing Committee on Finance, as reported in July 2026, was that VDAs pose systemic risks to emerging economies, that banks should remain fully insulated, and that its preference remains prohibition. The Committee’s study, running since 2024-25, has been examining the choice of regulator (SEBI, RBI, a new authority, or a self-regulatory structure), a unified definition of VDAs, and how to bring offshore volume onshore. A DEA hearing scheduled for 27 August 2026 was cancelled; a rescheduled hearing was set for 16 September. No date has been announced for the Committee’s report.
The result is that, by default, the income-tax department has become India’s most active crypto regulator. It has the only comprehensive definition, the only registration-like obligation with teeth (section 509 due diligence), the only cross-border data feed, and the only penalty regime that touches the sector’s day-to-day operations. That is not a role the department sought; its own disclaimer says so. But it is the role the legislative vacuum has assigned it.
Why this matters for RCASPs, investors, and advisers
For service providers, the practical consequence is asymmetry. The reporting obligations are precise, exhaustive and enforceable from 1 January 2026. The substantive tax positions of the very users they are reporting on remain uncertain on staking, DeFi, stablecoins, cost-basis methodology and characterisation. An RCASP will report a user’s staking rewards and wrapped-token conversions to CBDT in Form 167; the user will then have to compute tax on those same events under a statute that never mentions them.
For investors, the danger is that CARF closes the visibility gap before the law closes the clarity gap. From 2027 the department will hold exchange-sourced data on Indian residents’ offshore holdings. The scope for disputes on characterisation, timing and valuation, in the absence of clear statutory rules, will rise sharply once that data is matched against returns.
For advisers, the honest position is that a great deal of current crypto tax practice in India rests on reasoned interpretation rather than on the text of the Act. That is defensible, but it should be disclosed as such.
What a comprehensive framework would need
The Government has shown, through CARF, that it can legislate crypto provisions to international standard and on international deadlines. The same energy is needed on the domestic side. A comprehensive framework would characterise crypto-assets for tax purposes rather than merely rate them; it would reconcile the reporting and charging definitions so that a stablecoin is either money or a VDA, not both; it would provide statutory rules for staking, mining, airdrops, forks, wrapped assets and DeFi yields, including timing and cost base; it would revisit the absolute loss set-off bar, which has no parallel in the taxation of any other asset class and is the single largest driver of offshore migration; it would fix a valuation methodology for crypto-to-crypto transfers; and, beyond the tax statute, it would name a regulator and give the PMLA registration regime a market-conduct counterpart.
Until then, India will remain in the unusual position of being an early and exemplary adopter of the OECD’s rules for reporting crypto, while still lacking a settled domestic law for governing it. CARF was designed as an input to tax administration. In India, for the moment, it is close to being the whole of it.
