India implements stricter crypto rules to curb illicit transactions and terrorist financing.

India Tightens Crypto Regulations with Enhanced KYC Rules

India’s Financial Intelligence Unit (FIU) has introduced stricter identity verification rules for cryptocurrency exchanges to combat money laundering and terrorist financing, according to the Press Trust of India.

Under the updated guidelines, effective Jan. 8, exchanges must verify users with a live selfie showing blinking to confirm authenticity, alongside recording their location, date, time, and IP address. In addition to the mandatory Permanent Account Number (PAN), platforms must collect government-issued IDs such as passports, driver’s licenses, Aadhaar cards, or voter IDs, and confirm mobile numbers and emails via one-time passwords (OTPs).

Bank account ownership is verified using the “penny-drop” method, which charges a small refundable 1 rupee (INR). High-risk users—including those linked to tax havens, FATF-listed jurisdictions, politically exposed persons, or certain non-profits—are subject to enhanced due diligence every six months.

Exchanges are prohibited from supporting initial coin offerings (ICOs) or token offerings (ITOs) and from using tools that obscure transactions, such as tumblers. All platforms must register with the FIU, report suspicious activity, and retain user data for five years. The FIU cited ICOs and ITOs as high-risk with limited economic justification.

India continues to classify cryptocurrencies as virtual digital assets (VDAs) under the Income Tax Act, 1961. Citizens may trade VDAs on FIU-registered platforms, but they cannot be used as legal tender for goods or services.