Context:
The Financial Intelligence Unit-India (FIU-IND) has issued a directive mandating all registered cryptocurrency exchanges to enhance their Know Your Customer (KYC) processes by June 30, 2025, in compliance with the Prevention of Money Laundering Act (PMLA).
Key Highlights
KYC Overhaul Required
- Exchanges must update all user information, especially where KYC details are older than 18 months.
- Fresh KYC must be initiated for such users, with stricter data collection for accounts deemed “risky”.
TDS and Tax Compliance
- Crypto exchanges are required to deduct 1% TDS on transactions exceeding ₹10,000.
- Users must submit tax returns to claim exemption from TDS.
- FIU flagged non-collection of tax returns as non-compliance with PMLA.
- Several transactions without TDS are already under investigation by the Income Tax Department.
FIU’s Warning
- The FIU is closely monitoring exchanges for any breaches.
- Non-compliance with KYC or TDS requirements may result in penalties or operational restrictions.
- Globally, KYC violations are being taken seriously to combat money laundering and terror financing.
Compliance by Major Exchanges
- Binance: Previously fined ₹18 crore by FIU; now initiating KYC re-verification, including PAN card collection, for Indian users.
- Bybit: Settled a fine of ₹9.27 lakh for non-compliance; also asking users for fresh KYC.
- Coinbase Global: Recently registered with FIU-IND; preparing to launch retail services with full KYC compliance.
Regulatory Context
- Since March 2023, crypto exchanges are mandated to register with FIU-IND.
- Operating without registration can lead to penalties or shutdowns.
- As per the 2022 Union Budget, gains from Virtual Digital Assets (VDAs) are taxed at 30%.
