India's Financial Intelligence Unit (FIU) has introduced stricter requirements for cryptocurrency platforms, significantly increasing identity verification for users across the country.
According to the new rules, regulated crypto exchanges must verify user identities using live selfie verification and geolocation data during the registration process.
India's enhanced verification standards target deepfakes and static images
FIU: The latest regulations go beyond mere document verification. Exchanges must use live selfie verification, which requires actions such as blinking or turning the head to ensure the user's physical presence. The purpose is to prevent misuse of static images or deepfake technology in identity verification.
As reported by Times of India, platforms must collect information such as latitude and longitude, date, timestamp, and IP address during registration.
"RE (crypto exchange) also ensures that the individual whose information is used during registration is the same person who actually uses the app and personally initiates the account creation," the guidance states.
The regulatory framework also expands the required documentation. In addition to a PAN card, users must submit another form of identity proof. This could be, for example, a passport, Aadhaar card (a 12-digit identifier issued by the Indian government), or voter ID card.
In addition, email addresses and phone numbers are verified using a one-time password (OTP) to confirm accuracy. The penny-drop method, which involves a small, typically refundable 1-rupee bank transfer, confirms the user's actual ownership of the account.
In particular, high-risk identified users are subject to stricter and more frequent scrutiny under the new FIU rules. This group includes individuals with ties to tax havens, regions listed on FATF's gray or black lists, politically exposed persons (PEPs), or organizations not driven by profit motives.
These users' KYC details are updated every six months, whereas standard users undergo this verification once a year. Exchanges must also apply enhanced due diligence.
Beyond registration, FIU takes a strict stance toward anonymity-enhancing tools (mixers/tumblers and similar) used to obscure transaction chains. Guidance "strongly advises avoiding" Initial Coin Offerings (ICOs) and Initial Token Offerings (ITOs).
Authorities state that such activities create "heightened and complex" risks of money laundering and terrorist financing. In the FIU's view, they lack a clear economic rationale.
Strict taxation drives users toward offshore platforms
In addition to stricter supervision, India taxes crypto profits at a fixed 30% rate. An additional 1% source withholding tax (TDS) is levied on each transaction. Analysts have noted this tax model is "harmful," as it reduces domestic trading and pushes users toward foreign platforms.
"If we were to summarize this in a single sentence – a tax system that has been implemented and is unevenly enforced across industry players has already led to a clear shift of users and liquidity to foreign platforms," the report states.
According to the report, Indian users generated an estimated trading volume of ₹4,87,799 billion on foreign exchanges between October 2024 and October 2025. This amounts to approximately 54.1 billion USD.
For comparison, in the previous year, Indian trading on foreign platforms totaled ₹2,63,406 billion (29.2 billion USD). The annual growth was 85%.
The report notes that currently 91.5% of India's cryptocurrency trading occurs on foreign platforms, while only 8.5% takes place on registered domestic exchanges.
"The uncollected TDS source tax from October 2024 onward amounts to ₹4,877 billion. If calculated from the tax implementation date, the total rises to as much as ₹11,000 billion," analysts emphasize. "Regarding capital gains and the government's loss of capital income, we conservatively estimate the tax revenue loss to be approximately ₹36,000 billion after the tax implementation."
Increasing regulatory requirements and stringent taxation are making cryptocurrency markets more challenging in India. New KYC rules aim to increase transparency and combat crime, but high taxes are pushing users abroad, reducing tax revenues. The balance between oversight and domestic activity remains uncertain, and the crypto industry is at a critical juncture.