Tax and other regulatory agencies in India claim that cryptocurrencies and permissionless blockchain tech undermine tax collection.
India’s Financial Intelligence Unit (FIU), a regulatory agency that sets anti-money laundering and know-your-customer regulations, issued new guidelines tightening rules for onboarding users to crypto platforms.
The new rules force regulated crypto exchanges to verify users through live selfie pictures and geographic location verification, to The Times of India.
The live selfie pictures are verified with software that tracks users’ eye and head movements to prevent AI deep fakes from being used to bypass the (KYC) verification process.
Exchanges will also be required to collect the geolocation and IP addresses at the time of account creation, along with a timestamp of when the account was created.
The exchanges must verify user bank accounts by sending a small transaction to the account to satisfy (AML) requirements.
Users will now be required to submit additional government-issued photo identification to exchanges and verify their email and mobile numbers to create an account with a registered crypto exchange.
The new rules reflect the and digital assets in India, which has one of the largest total addressable markets in the world. India’s population of over 1.4 billion people coming onchain could bring a fresh wave of investment to crypto.
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Officials with India’s Income Tax Department (ITD) met with parliamentary lawmakers on Wednesday and argued that cryptocurrencies and decentralized finance platforms .
The ITD officials said that decentralized crypto exchanges, anonymous wallets, and crypto’s cross-border functionality make it difficult to tax.
Tax regulations, which change by jurisdiction, also complicate the ability to tax crypto efficiently, the ITD officials told lawmakers.
Under India’s Income Tax Act, gains from cryptocurrency sales are , with users allowed to deduct only the cost basis against the gains.
Crypto traders in India cannot harvest tax losses, meaning they cannot use losses from other crypto sales to offset gains incurred in different transactions.
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