What Happened
- The Ministry of Finance's Department of Revenue issued a notification on March 5, 2026 amending Income Tax Rules 114F, 114G, and 114H to expand the reporting framework for financial assets to include crypto-assets and Central Bank Digital Currency (CBDC) accounts.
- The amendments are effective retrospectively from January 1, 2026, and are administered by the Central Board of Direct Taxes (CBDT).
- "Central Bank Digital Currency" has been formally defined in the rules as any digital fiat currency issued by a central bank.
- The definition of "financial assets" has been expanded to include interests related to crypto-assets — including futures contracts, forward contracts, and options contracts on crypto.
- Financial institutions and crypto-asset service providers must now report transactions and holdings to tax authorities under a strengthened framework.
- Institutions must record: valid self-certification of tax residency, whether accounts are jointly held, whether accounts are new or pre-existing, and details of controlling persons in entities (including roles and certification status).
- India has also committed to cross-border sharing of crypto transaction data from April 2027, aligned with the OECD's Crypto-Asset Reporting Framework (CARF).
- The Union Budget 2026 added a ₹45,000 penalty (approximately $545) for compliance lapses in crypto reporting, while maintaining the 30% flat tax on crypto gains and 1% TDS on transactions above ₹10,000.
Static Topic Bridges
The OECD Crypto-Asset Reporting Framework (CARF) and Global Tax Transparency
The OECD developed the Crypto-Asset Reporting Framework (CARF) in 2022 as a global standard for the automatic exchange of tax-related information on crypto-asset transactions. It was approved by the OECD/G20 Inclusive Framework and 67 jurisdictions have committed to its implementation.
- CARF requires "Reporting Crypto-Asset Service Providers" (CASPs) — essentially all centralized crypto exchanges — to report transaction data to tax authorities annually.
- It is a standalone framework from the Common Reporting Standard (CRS), which governs traditional financial accounts.
- CRS 2.0 handles indirect crypto exposure (derivatives in custodial accounts); CARF handles on-chain/direct crypto transactions.
- First exchanges of data under CARF expected: 2027.
- India committed to implementing CARF — the domestic rule amendments on Rules 114F/G/H are the legislative groundwork for this commitment.
- 47 jurisdictions had already committed to CARF implementation by 2027 as of the OECD's 2025 monitoring update.
Connection to this news: India's amendment to IT Rules 114F, 114G, and 114H is the domestic implementation of CARF obligations. By expanding "financial assets" to include crypto and mandating new reporting requirements on CASPs, India is building the legal infrastructure to begin cross-border data exchange on crypto transactions by April 2027.
India's Digital Rupee (CBDC) and e-Rupee Framework
India's Central Bank Digital Currency — the Digital Rupee or e-Rupee — was launched by the Reserve Bank of India in pilot phases starting December 2022. It is a sovereign digital currency, a direct liability of the RBI, distinct from commercial bank money or cryptocurrency.
- Two variants: e₹-W (wholesale CBDC, for interbank settlement) and e₹-R (retail CBDC, for general public use).
- Retail CBDC pilot launched December 1, 2022; expanded to 13 cities and multiple banks by 2023.
- e-Rupee uses a token-based architecture — it functions like digital cash.
- Unlike UPI (which transfers commercial bank money), CBDC is a direct RBI liability — no credit risk, no bank intermediary required.
- The RBI aims to reduce currency management costs and improve cross-border payment efficiency through CBDC.
- As of 2025, the e-Rupee pilot had over 1 million users and 400,000 merchants enrolled.
- Formally including CBDC in the IT reporting framework clarifies tax treatment of CBDC transactions, which had been in a legal grey area.
Connection to this news: The CBDC's formal inclusion in the IT reporting framework resolves an ambiguity — CBDC accounts must now be reported like any other financial account. This is particularly relevant as the RBI scales up the e-Rupee and as cross-border CBDC pilots with other central banks are explored.
Virtual Digital Assets (VDAs) — India's Existing Crypto Tax Regime
India introduced a dedicated tax regime for Virtual Digital Assets (VDAs) in the Union Budget 2022-23, effective April 1, 2022. This was the first formal legislative recognition of crypto-assets in Indian tax law.
- Flat 30% tax on income from transfer of VDAs (no deduction for expenses other than acquisition cost).
- 1% TDS on crypto transactions above ₹10,000 per transaction (₹50,000 for specified persons).
- No set-off of losses from VDA against any other income.
- No carry-forward of VDA losses.
- Gifts of VDAs taxable in the hands of the recipient.
- The 2026 budget added a ₹45,000 (~$545) penalty for lapses in reporting.
- India is set to begin sharing cross-border crypto transaction data under CARF from April 2027.
- India's crypto tax regime is one of the strictest globally — analysts note it has pushed some traders to offshore exchanges beyond SEBI/RBI oversight.
Connection to this news: The CBDT's expansion of Rules 114F/G/H strengthens the existing VDA tax regime by adding institutional reporting obligations on CASPs and exchanges — moving beyond taxing individual gains to building a systemic surveillance infrastructure for the entire digital asset ecosystem.
Key Facts & Data
- Notification date: March 5, 2026 (Ministry of Finance, Department of Revenue)
- Rules amended: Income Tax Rules 114F, 114G, 114H
- Effective date: January 1, 2026 (retrospective)
- Tax rate on VDA gains: 30% flat
- TDS on crypto transactions: 1% above ₹10,000
- New penalty for reporting lapses: ₹45,000 (~$545)
- OECD CARF implementation: India commits to first data exchange by April 2027
- Jurisdictions committed to CARF: 67
- India's e-Rupee users (2025): 1 million+; merchants enrolled: 400,000+
- Retail CBDC launch: December 1, 2022